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Are we missing exchange rate policy? The impact of current account adjustment on tradable and nontradable sector in monetary union

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  • Jaromír Šindel

Abstract

The aim of this paper is to discuss the impact of current account adjustment on the tradable and nontradable sector in member countries of currency union - Euro zone. The current account adjustment associated with the adjustment of the net export's deficit caused by the drop in the domestic absorption evokes the increase in the relative price of the nontradable sector. The paper discusses this hypothesis within framework of the Portuguese current account adjustment, which is the result of European financial integration in catching-up countries. The common monetary policy and common currency cannot offset the negative impact of nontradable price increase within the internal expenditure switching effect and also can not support exporters within the external expenditure effect.. The Portuguese current account adjustment was not followed by the currency depreciation and the tradable price increase. The cost of the currency asymmetric response were born by the tradable mark-up decrease, the falling decrease in nontradable wages and employment and finally by the nontradable mark-up and employment decrease.

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Bibliographic Info

Article provided by University of Economics, Prague in its journal Politická ekonomie.

Volume (Year): 2007 (2007)
Issue (Month): 3 ()
Pages:

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Handle: RePEc:prg:jnlpol:v:2007:y:2007:i:3:id:603

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Related research

Keywords: current account; common currency; tradable sector; nontradable sector;

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