Consumption And Real Exchange Rates In Dynamic Economies With Non-traded Goods

David Backus and Gregor Smith

No 1252, Working Paper from Economics Department, Queen's University

Abstract: We examine the possibility that nontraded goods may account for several striking features of international macroeconomic data: large, persistent deviations from purchasing powerparity, small correlations of aggregate consumption fluctuations across countries, and substantialinternational real interest rate differentials. A dynamic, exchange economy is used to show that nontraded goods in principle can account for each of these phenomena. In the theory there is a close relation between fluctuations in consumption ratios and those in bilateral real exchange rates, but we find little evidence for this relation in time series data for eight OECD countries.

Keywords: consumption correlations; purchasing power parity; real exchange rates (search for similar items in EconPapers)
JEL-codes: F41 (search for similar items in EconPapers)
Pages: 25 pages
Date: 1993-01
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Citations: View citations in EconPapers (612)

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https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_1252.pdf First version 1993 (application/pdf)

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Journal Article: Consumption and real exchange rates in dynamic economies with non-traded goods (1993)
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:1252

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