Elasticity of Substitution and the Persistence of the Deviation of the Real Exchange Rates
AbstractEmpirical evidence suggests (i) that the real exchange rates of developing economies show less persistence than do those of more advanced economies, and (ii) that the elasticity of substitution between capital and labor tends to increase from below unity for less developed economies to above one for more advanced economies. This paper shows how the introduction of sectoral adjustment costs in a two-sector model of a small open economy, together with CES production functions, provides a very natural explanation of this empirical regularity. Other aspects of the relationship between the technologies and the speed of convergence of the real exchange rate are also discussed. Copyright � 2006 The Authors; Journal compilation � 2006 Blackwell Publishing Ltd.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of Development Economics.
Volume (Year): 10 (2006)
Issue (Month): 3 (08)
Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=1363-6669
Other versions of this item:
- Stephen J. Turnovsky & A.K.M. Mahbub Morshed, 2005. "Elasticity of Substitution and the Persistence of the Deviation of the Real Exchange Rates," Computing in Economics and Finance 2005 39, Society for Computational Economics.
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Mahbub Morshed, A.K.M. & Turnovsky, Stephen J., 2011. "Real exchange rate dynamics: The role of elastic labor supply," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1303-1322.
- Serpil Bouza & Stephen J. Turnovsky, 2012. "The Effects of Foreign Transfers with Flexible Labor Supply," Ekonomi-tek - International Economics Journal, Turkish Economic Association, vol. 1(1), pages 1-39, January.
- Brock, Philip L., 2011. "The Penn-Balassa-Samuelson effect through the lens of the dependent economy model," Journal of Economic Dynamics and Control, Elsevier, vol. 35(9), pages 1547-1556, September.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.