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The Volatility of the Tradeable and Nontradeable Sectors: Theory and Evidence

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Povoledo, Laura

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Abstract

This paper investigates the business cycle fluctuations of the tradeable and nontradeable sectors of the US economy. Then, it evaluates whether a "New Open Economy" model having prices sticky in the producer's currency can reproduce the observed fluctuations qualitatively. The answer is positive: the model-implied standard deviations are consistent with the pattern in the data. In particular, tradeable output is more volatile than nontradeable output. A key role in generating this result is played by the greater responsiveness of tradeable output to monetary shocks. Parameter estimates are obtained by Generalised Method of Moments.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3114.

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Date of creation: Apr 2007
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Handle: RePEc:pra:mprapa:3114

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Related research
Keywords: New Open Economy Macroeconomics Tradeable and Nontradeable Sectors Business Cycles

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Find related papers by JEL classification:
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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  16. Tille, Cedric, 2001. "The role of consumption substitutability in the international transmission of monetary shocks," Journal of International Economics, Elsevier, vol. 53(2), pages 421-444, April. [Downloadable!] (restricted)
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