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Volatility of the Tradeable and Non-Tradeable Sectors: Theory and evidence

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Author Info
Laura Povoledo () (Department of Economics, University of Reading)

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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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Publisher Info
Paper provided by School of Business, Reading University in its series Economics & Management Discussion Papers with number em-dp2007-47.

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Length: 54 pages
Date of creation: 2007
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Handle: RePEc:rdg:emxxdp:em-dp2007-47

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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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