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

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Abstract

Economic theory and empirical evidence suggest that fluctuation in exchange rates may have strong reallocation effects. Accession to the Exchange Rate Mechanism in 1992, and then to the European Monetary Union em 1999, implied a drastic change in the behavior of Portugal´s exchange rate indexes. The analysis of those indexes is therefore bound ti 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 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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Paper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 13/2009.

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Date of creation: 2009
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Handle: RePEc:nip:nipewp:13/2009

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

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  1. 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.
  2. Herman Z. Bennett & Ziga Zarnic, 2008. "International Competitiveness of the Mediterranean Quartet:A Heterogeneous-Product Approach," IMF Working Papers 08/240, International Monetary Fund.
  3. José Manuel Campa & Linda S. Goldberg, 1999. "Employment versus Wage Adjustment and the U.S. Dollar," Working Papers 99-07, New York University, Leonard N. Stern School of Business, Department of Economics.
  4. International Monetary Fund, 2005. "New Rates From New Weights," IMF Working Papers 05/99, International Monetary Fund.
  5. Luca Buldorini & Stelios Makrydakis & Christian Thimann, 2002. "The effective exchange rates of the euro," Occasional Paper Series 02, European Central Bank.
  6. 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.
  7. 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.
  8. 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.
  9. 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.
  10. 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.
  11. 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.
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Cited by:
  1. João Sousa Andrade & Adelaide Duarte, 2011. "The Fundamentals of the Portuguese Crisis," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(2), pages 195-218, June.
  2. Alexandre, Fernando & Bação, Pedro & Cerejeira, João & Portela, Miguel, 2010. "Manufacturing Employment and Exchange Rates in the Portuguese Economy: The Role of Openness, Technology and Labour Market Rigidity," IZA Discussion Papers 5251, Institute for the Study of Labor (IZA).
  3. Fernando Alexandre & Pedro Bação & João Cerejeira & Miguel Portela, 2009. "Employment and Exchange rates: the Role of Openness and Technology," GEE Papers 0015, Gabinete de Estratégia e Estudos, Ministério da Economia e da Inovação, revised May 2009.
  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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