American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Real Exchange Rates and Sectoral Productivity in the Eurozone
American Economic Review
vol. 108,
no. 6, June 2018
(pp. 1543–81)
Abstract
We investigate the link between real exchange rates and sectoral TFP for eurozone countries. We show that real exchange rate variation, both cross-country and time-series, closely accords with an amended Balassa-Samuelson interpretation, incorporating sectoral productivity shocks and a labor market wedge. We construct a DSGE model to generate a cross section and time series of real exchange rates to compare to data. Estimates from simulated regressions are very similar to estimates for eurozone data. Our findings contrast with previous studies that have found little relationship between productivity and real exchange rates among high-income countries that have floating nominal exchange rates.Citation
Berka, Martin, Michael B. Devereux, and Charles Engel. 2018. "Real Exchange Rates and Sectoral Productivity in the Eurozone." American Economic Review, 108 (6): 1543–81. DOI: 10.1257/aer.20151045Additional Materials
JEL Classification
- E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian
- E23 Macroeconomics: Production
- E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
- F31 Foreign Exchange
- F33 International Monetary Arrangements and Institutions
- F43 Economic Growth of Open Economies