Consumption and Real Exchange Rates with Incomplete Markets and Non-traded Goods

Gianluca Benigno and Christoph Thoenissen

CDMA Conference Paper Series from Centre for Dynamic Macroeconomic Analysis

Abstract: This paper addresses the consumption-real exchange rate anomaly. International real business cycle models based on complete financial markets predict a unitary correlation between the real exchange rate and the ratio of home to foreign consumption when subjected to supply side shocks. In the data, this correlation is usually small and often negative. This paper shows that this anomaly can be successfully addressed by models that have an incomplete financial market structure and a non-traded as well as traded goods production sector.

Keywords: Consumption-real exchange rate anomaly; incomplete financial markets; non-traded goods. (search for similar items in EconPapers)
JEL-codes: F31 F41 (search for similar items in EconPapers)
Date: 2004-09, Revised 2006-12
New Economics Papers: this item is included in nep-ifn
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Citations: View citations in EconPapers (34)

Forthcoming in Journal of International Money and Finance.

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Related works:
Journal Article: Consumption and real exchange rates with incomplete markets and non-traded goods (2008)
Working Paper: Consumption and Real Exchange Rates with Incomplete Markets and Non-Traded Goods (2006)
Working Paper: Consumption and Real Exchange Rates with Incomplete Markets and Non-Traded Goods (2006)
Working Paper: Consumption and real exchange rates with incomplete markets and non-traded goods (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:san:cdmacp:0405

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