International and Intra-national Real Exchange Rates: Evidence and Theory
AbstractIn this paper we study two long-standing puzzles in the International Finance literature: the fact that the real exchange rate (RER) is very volatile (RER volatility puzzle) and that it covaries negatively with domestic consumption relative to foreign consumption (Backus-Smith puzzle). To understand the two puzzles we depart from the existing literature by focusing on a disaggregated analysis of consumption and RER. First, using region-level data for a large number of developed and developing economies we document the characteristics of the two puzzles in cross-country and within-country data. We then develop a combined model of inter-regional and international trade. The model exhibits variations in inter-regional as well as in inter-national consumption and real exchange rates. We show that with a combination of within country and across country shocks and endogenous non-tradability the model can rationalize the two puzzles, and does so in both international and intra-national dimensions.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 1213.
Date of creation: 2009
Date of revision:
Contact details of provider:
Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Vincent Labhard & Michael Sawicki, 2006. "International and intranational consumption risk sharing: the evidence for the United Kingdom and OECD," Bank of England working papers 302, Bank of England.
- Benigno, Gianluca & Thoenissen, Christoph, 2006.
"Consumption and Real Exchange Rates with Incomplete Markets and Non-Traded Goods,"
CEPR Discussion Papers
5580, C.E.P.R. Discussion Papers.
- Benigno, Gianluca & Thoenissen, Christoph, 2008. "Consumption and real exchange rates with incomplete markets and non-traded goods," Journal of International Money and Finance, Elsevier, vol. 27(6), pages 926-948, October.
- Gianluca Benigno & Christoph Thoenissen, 2004. " Consumption and Real Exchange Rates with Incomplete Markets and Non-traded Goods," CDMA Conference Paper Series 0405, Centre for Dynamic Macroeconomic Analysis, revised Dec 2006.
- Gianluca Benigno & Christoph Theonissen, 2006. "Consumption and Real Exchange Rates with Incomplete Markets and Non-Traded Goods," CEP Discussion Papers dp0771, Centre for Economic Performance, LSE.
- Stockman, Alan C & Tesar, Linda L, 1995.
"Tastes and Technology in a Two-Country Model of the Business Cycle: Explaining International Comovements,"
American Economic Review,
American Economic Association, vol. 85(1), pages 168-85, March.
- Alan C. Stockman & Linda L. Tesar, 1995. "Tastes and Technology in a Two-Country Model of the Business Cycle: Explaining International Comovements," NBER Working Papers 3566, National Bureau of Economic Research, Inc.
- Alan C. Stockman & Linda L. Tesar, 1991. "Tastes and technology in a two-country model of the business cycle: explaining international co-movements," Working Paper 9019, Federal Reserve Bank of Cleveland.
- Ravn, Morten O., 2001. "Consumption Dynamics and Real Exchange Rate," CEPR Discussion Papers 2940, C.E.P.R. Discussion Papers.
- Alok Johri & Amartya Lahiri, 2006.
"Persistent Real Exchange Rates,"
2006 Meeting Papers
281, Society for Economic Dynamics.
- Kollmann, R., 1992.
"Consumption, Real Exchange Rates and the Structure of International Asset Markets,"
Cahiers de recherche
9232, Universite de Montreal, Departement de sciences economiques.
- Kollmann, Robert, 1995. "Consumption, real exchange rates and the structure of international asset markets," Journal of International Money and Finance, Elsevier, vol. 14(2), pages 191-211, April.
- Robert Kollmann, 1995. "Consumption, real exchange rates and the structure of international asset markets," ULB Institutional Repository 2013/7642, ULB -- Universite Libre de Bruxelles.
- Kollmann, R., 1992. "Consumption, Real Exchange Rates and the Structure of International Asset Markets," Cahiers de recherche 9232, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- George Alessandria & Horag Choi, 2007.
"Do Sunk Costs of Exporting Matter for Net Export Dynamics?,"
The Quarterly Journal of Economics,
MIT Press, vol. 122(1), pages 289-336, 02.
- George Alessandria & Horag Choi, 2005. "Do sunk costs of exporting matter for net export dynamics?," Working Papers 05-20, Federal Reserve Bank of Philadelphia.
- Tesar, Linda L., 1993. "International risk-sharing and non-traded goods," Journal of International Economics, Elsevier, vol. 35(1-2), pages 69-89, August.
- Kanda Naknoi, 2005.
"Real exchange rate fluctuations, endogenous tradability and exchange rate regime,"
0509004, EconWPA, revised 07 Nov 2005.
- Naknoi, Kanda, 2008. "Real exchange rate fluctuations, endogenous tradability and exchange rate regimes," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 645-663, April.
- Backus, David K. & Smith, Gregor W., 1993.
"Consumption and real exchange rates in dynamic economies with non-traded goods,"
Journal of International Economics,
Elsevier, vol. 35(3-4), pages 297-316, November.
- David K. Backus & Gregor W. Smith, 1993. "Consumption and Real Exchange Rates in Dynamic Economies with Non-Traded Goods," Working Papers 1252, Queen's University, Department of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).
If references are entirely missing, you can add them using this form.