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Aggregate and sector-specific exchange rate indexes for the Portuguese economy

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Author Info

  • Fernando Alexandre

    ()
    (University of Minho and NIPE)

  • Pedro Bação

    ()
    (University of Coimbra and GEMF)

  • João Cerejeira

    ()
    (University of Minho and NIPE)

  • Miguel Portela

    ()
    (University of Minho, NIPE and IZA)

Abstract

Economic theory and empirical evidence suggest that fluctuations in exchange rates may have strong reallocation effects. Accession to the Exchange Rate Mechanism in 1992, and then to the European Monetary Union in 1999, implied a drastic change in the behaviour of Portugal's exchange rate indexes. The analysis of those indexes is therefore bound to play an important role in the study of the evolution of the Portuguese economy in the last two decades. However, there are many alternative exchange rate indexes. In this paper, we compute and compare aggregate and sector-specific exchange rate indexes for the Portuguese economy. We find that alternative effective exchange rate indexes are very similar between them. We also find that sector-specific effective exchange rates are strongly correlated with aggregate indexes. Nevertheless, we show that sector-specific exchange rates are more informative than aggregate exchange rates in explaining changes in employment: whereas aggregate indexes are statistically insignificant in employment equations, regressions using sector-specific exchange rate indexes show a statistically significant and economically large effect of exchange rates on employment.

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Bibliographic Info

Paper provided by GEMF - Faculdade de Economia, Universidade de Coimbra in its series GEMF Working Papers with number 2009-05.

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Length: 33 pages
Date of creation: May 2009
Date of revision:
Publication status: Published in Notas Económicas 30: 6-28, 2009
Handle: RePEc:gmf:wpaper:2009-05

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Keywords: exchange rates; international trade; employment; EMU.;

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References

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  1. Luca Buldorini & Stelios Makrydakis & Christian Thimann, 2002. "The effective exchange rates of the euro," Occasional Paper Series 02, European Central Bank.
  2. Bayoumi, Tamim & Jayanthi, Sarma & Lee, Jaewoo, 2006. "New Rates from New Weights," CEPR Discussion Papers 5860, C.E.P.R. Discussion Papers.
  3. João Amador & Sónia Cabral & José R. Maria, 2007. "International Trade Patterns over the Last Four Decades: How does Portugal Compare with other Cohesion Countries?," Working Papers w200714, Banco de Portugal, Economics and Research Department.
  4. Jose Manuel Campa & Linda S. Goldberg, 1998. "Employment versus wage adjustment and the U.S. dollar," Staff Reports 56, Federal Reserve Bank of New York.
  5. Herman Z Bennett & Ziga Zarnic, 2009. "International Competitiveness of the Mediterranean Quartet: A Heterogeneous-Product Approach," IMF Staff Papers, Palgrave Macmillan, vol. 56(4), pages 919-957, November.
  6. Linda S. Goldberg, 2004. "Industry-specific exchange rates for the United States," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 1-16.
  7. Manuel de Heredia Caldeira Cabral, 2008. "Export Diversification And Technological Improvement: Recent Trends In The Portuguese Economy," GEE Papers 0006, Gabinete de Estratégia e Estudos, Ministério da Economia e da Inovação, revised Apr 2008.
  8. Ekholm, Karolina & Moxnes, Andreas & Ulltveit-Moe, Karen-Helene, 2008. "Manufacturing restructuring and the role of Real exchange rate shocks: A firm level analysis," CEPR Discussion Papers 6904, C.E.P.R. Discussion Papers.
  9. Michael W. Klein & Scott Schuh & Robert K. Triest, 2000. "Job Creation, Job Destruction, and the Real Exchange Rate," NBER Working Papers 7466, National Bureau of Economic Research, Inc.
  10. William H. Branson & James Love, 1988. "U.S. Manufacturing and the Real Exchange Rate," NBER Chapters, in: Misalignment of Exchange Rates, pages 241-276 National Bureau of Economic Research, Inc.
  11. Paulo Soares Esteves & Carolina Reis, 2006. "Measuring export competitiveness: revisiting the effective exchange rate weights for the euro area countries," Working Papers w200611, Banco de Portugal, Economics and Research Department.
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Cited by:
  1. Fernando Alexandre & Pedro Bação & João Cerejeira & Miguel Portela, 2010. "Manufacturing employment and exchange rates in the Portuguese economy: the role of openness, technology and labour market rigidity," NIPE Working Papers 22/2010, NIPE - Universidade do Minho.
  2. Fernando Alexandre & Pedro Bação & João Cerejeira & Miguel Portela, 2009. "Employment and exchange rates: the role of openness and technology," GEMF Working Papers 2009-08, GEMF - Faculdade de Economia, Universidade de Coimbra.
  3. João Sousa Andrade & Adelaide Duarte, 2011. "The Fundamentals of the Portuguese Crisis," GEMF Working Papers 2011-16, GEMF - Faculdade de Economia, Universidade de Coimbra.
  4. SATO Kiyotaka & SHIMIZU Junko & Nagendra SHRESTHA & Shajuan ZHANG, 2013. "Exchange Rate Appreciation and Export Price Competitiveness: Industry-specific real effective exchange rates of Japan, Korea, and China," Discussion papers 13032, Research Institute of Economy, Trade and Industry (RIETI).
  5. SATO Kiyotaka & SHIMIZU Junko & Nagendra SHRESTHA & Shajuan ZHANG, 2012. "The Construction and Analysis of Industry-specific Effective Exchange Rates in Japan," Discussion papers 12043, Research Institute of Economy, Trade and Industry (RIETI).

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