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

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  • Laura Povoledo

    ()
    (UWE, Bristol)

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: both in the model and in the data the standard deviations of tradeable inflation, output and employment are significantly higher than the standard deviations of the corresponding nontradeable sector variables. A key role in generating this result is played by the greater responsiveness of tradeable sector variables to monetary shocks.

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File URL: http://carecon.org.uk/DPs/0906.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol in its series Working Papers with number 0906.

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Length: 53 pages
Date of creation: Apr 2009
Date of revision:
Handle: RePEc:uwe:wpaper:0906

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Postal: Frenchay Campus, Coldharbour Lane, Bristol BS16 1QY
Phone: 0117 328 3610
Web page: http://www1.uwe.ac.uk/bl/research/bristoleconomics.aspx
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Keywords: New Open Economy Macroeconomics; Tradeable and Nontradeable Sectors; Business Cycles.;

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  1. Caroline M. Betts & Timothy J. Kehoe, 2005. "U.S. Real Exchange Rate Fluctuations and Relative Price Fluctuations," IEPR Working Papers, Institute of Economic Policy Research (IEPR) 05.16, Institute of Economic Policy Research (IEPR).
  2. Simon Wren-Lewis & Campbell Leith, 2007. "The Optimal Monetary Policy Response to Exchange Rate Misalignments," Economics Series Working Papers, University of Oxford, Department of Economics 305, University of Oxford, Department of Economics.
  3. Corsetti, Giancarlo & Pesenti, Paolo, 2005. "International dimensions of optimal monetary policy," Journal of Monetary Economics, Elsevier, Elsevier, vol. 52(2), pages 281-305, March.
  4. Hamid Faruqee & Douglas Laxton & Dirk Muir & Paolo Pesenti, 2005. "Smooth Landing or Crash? Model-Based Scenarios of Global Current Account Rebalancing," NBER Working Papers 11583, National Bureau of Economic Research, Inc.
  5. Frank Smets & Raf Wouters, 2002. "An estimated dynamic stochastic general equilibrium model of the euro area," Working Paper Research, National Bank of Belgium 35, National Bank of Belgium.
  6. Gianluca Benigno & Christoph Thoenissen, 2002. "Equilibrium exchange rates and supply-side performance," Bank of England working papers, Bank of England 156, Bank of England.
  7. Maurice Obstfeld & Kenneth S. Rogoff, 2005. "Global Current Account Imbalances and Exchange Rate Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(1), pages 67-146.
  8. Lane, P, 1999. "The New Open Economy Macroeconomics: A Survey," Trinity Economics Papers, Trinity College Dublin, Department of Economics 993, Trinity College Dublin, Department of Economics.
  9. Bergin, Paul R., 2003. "Putting the 'New Open Economy Macroeconomics' to a test," Journal of International Economics, Elsevier, Elsevier, vol. 60(1), pages 3-34, May.
  10. Rogerson, Richard, 1988. "Recursive Competitive Equilibrium in Multi-sector Economies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(3), pages 419-30, August.
  11. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 103(3), pages 624-60, June.
  12. Thomas Lubik & Frank Schorfheide, 2005. "A Bayesian Look at New Open Economy Macroeconomics," Economics Working Paper Archive, The Johns Hopkins University,Department of Economics 521, The Johns Hopkins University,Department of Economics.
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Cited by:
  1. Laura Povoledo, 2013. "Modelling the sectoral allocation of labour in open economy models," Working Papers, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol 20131312, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.

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