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The real exchange rate of the dollar for a panel of OECD countries: Balassa-Samuelson or distribution sector effect?

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  • Mariam Camarero

Abstract

The purpose of this paper is to analyse the role of productivity in the behaviour of the dollar real exchange rate against a group of OECD countries' currencies. To do this, a general specification is tested, paying special attention to the breakdown of the productivity variable into tradables, non-tradables and distribution sector productivity. The applied methodology relies on the Pool Mean Group estimation methodology proposed by Pesaran et al (1999) to obtain error correction models in panels without imposing equal long and shortrun parameters for the panel. The results point to the relevance of the differences in the distribution sector productivity to explain the real exchange rate, especially in the European Union countries. These results are in accordance with New Open Macroeconomics models predictions concerning the role of both distribution sector productivity and fiscal expenditure on the real exchange rate.

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Paper provided by FEDEA in its series Working Papers on International Economics and Finance with number 06-04.

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Handle: RePEc:fda:fdadef:06-04

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  1. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
  2. Giovanni Ganelli, 2002. "The New Open Economy Macroeconomics of Government Debt," Trinity Economics Papers 200214, Trinity College Dublin, Department of Economics.
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  4. Philip R. Lane & Gian Maria Milesi-Ferretti, 2000. "The Transfer Problem Revisited: Net Foreign Assets and Real Exchange Rates," Working Papers 062000, Hong Kong Institute for Monetary Research.
  5. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
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  7. Menzie Chinn & Louis Johnston, 1996. "Real Exchange Rate Levels, Productivity and Demand Shocks: Evidence from a Panel of 14 Countries," NBER Working Papers 5709, National Bureau of Economic Research, Inc.
  8. Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers 979, Cowles Foundation for Research in Economics, Yale University.
  9. Balázs Égert & Imed Drine & Kirsten Lommatzsch & Christophe Rault, 2005. "The Balassa-Samuelson Effect in Central and Eastern Europe: Myth or Reality?," Documents de recherche 05-15, Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne.
  10. Jaewoo Lee & Man-Keung Tang, 2007. "Does Productivity Growth Appreciate the Real Exchange Rate?," Review of International Economics, Wiley Blackwell, vol. 15(1), pages 164-187, 02.
  11. Ron Alquist & Menzie D. Chinn, 2002. "Productivity and the Euro-Dollar Exchange Rate Puzzle," NBER Working Papers 8824, National Bureau of Economic Research, Inc.
  12. Devereux, Michael B, 1999. "Real Exchange Rate Trends and Growth: A Model of East Asia," Review of International Economics, Wiley Blackwell, vol. 7(3), pages 509-21, August.
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Cited by:
  1. Fernando Alexandre & Pedro Bação, 2012. "Portugal before and after the European Union: Facts on Nontradables," NIPE Working Papers 15/2012, NIPE - Universidade do Minho.
  2. Lopcu, Kenan & Dülger, Fikret & Burgaç, Almıla, 2013. "Relative productivity increases and the appreciation of the Turkish lira," Economic Modelling, Elsevier, vol. 35(C), pages 614-621.

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