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Transfer Effect in National Price Levels

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  • Jaewoo Lee

    (IMF)

Abstract

A model of national price levels is developed to lay bare implicit assumptions behind the conventional view on the effect of productivity differentials and net foreign assets. The effect of productivity on national price levels is determined by the interaction of several countervailing channels, implying that the net effect can go in either direction for reasonable parameter values. By comparison, net foreign assets have a more robust effect on national price levels than productivity differentials. Basic theoretical implications are confirmed by the price level data of OECD countries.

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File URL: http://128.118.178.162/eps/if/papers/0512/0512004.pdf
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Bibliographic Info

Paper provided by EconWPA in its series International Finance with number 0512004.

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Length: 36 pages
Date of creation: 19 Dec 2005
Date of revision:
Handle: RePEc:wpa:wuwpif:0512004

Note: Type of Document - pdf; pages: 36
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Web page: http://128.118.178.162

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Keywords: price levels; productivity; net foreign assets;

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References

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  1. Jaewoo Lee & Man-Keung Tang, 2003. "Does Productivity Growth Lead to Appreciation of the Real Exchange Rate?," IMF Working Papers 03/154, International Monetary Fund.
  2. Crucini, Mario J. & Shintani, Mototsugu, 2008. "Persistence in law of one price deviations: Evidence from micro-data," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 629-644, April.
  3. Mario J. Crucini & Chris I. Telmer & Marios Zachariadis, 2005. "Understanding European Real Exchange Rates," American Economic Review, American Economic Association, vol. 95(3), pages 724-738, June.
  4. Menzie D. Chinn & Jaewoo Lee, 2005. "Three Current Account Balances: A "Semi-Structuralist" Interpretation," NBER Working Papers 11853, National Bureau of Economic Research, Inc.
  5. Kraay, Aart & Ventura, Jaume, 1997. "Current accounts in debtor and creditor countries," Policy Research Working Paper Series 1825, The World Bank.
  6. Canzoneri, Matthew B. & Cumby, Robert E. & Diba, Behzad, 1999. "Relative labor productivity and the real exchange rate in the long run: evidence for a panel of OECD countries," Journal of International Economics, Elsevier, vol. 47(2), pages 245-266, April.
  7. Ph.R. Lane & G.M. Milesi-Ferretti, 2003. "External Wealth, the Trade Balance, and the Real Exchange Rate," DNB Staff Reports (discontinued) 80, Netherlands Central Bank.
  8. van Ark, Bart, 1998. "Productivity," Journal of the Japanese and International Economies, Elsevier, vol. 12(2), pages 171-174, June.
  9. Paul Bergin & Reuven Glick & Alan M. Taylor, 2004. "Productivity, Tradability, and the Long-Run Price Puzzle," NBER Working Papers 10569, National Bureau of Economic Research, Inc.
  10. Hamid Faruqee, 1995. "Long-Run Determinants of the Real Exchange Rate: A Stock-Flow Perspective," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 80-107, March.
  11. Mario J Crucini & Mototsugu Shintani, 2002. "Persistence in Law-of-One-Price Deviations: Evidence From Micro-Price Data," Levine's Working Paper Archive 506439000000000019, David K. Levine.
  12. Hamid Faruqee, 1994. "Long-Run Determinants of the Real Exchange Rate - A Stock-Flow Perspective," IMF Working Papers 94/90, International Monetary Fund.
  13. Kravis, Irving B, 1984. "Comparative Studies of National Incomes and Prices," Journal of Economic Literature, American Economic Association, vol. 22(1), pages 1-39, March.
  14. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
  15. Samuelson, Paul A, 1994. "Facets of Balassa-Samuelson Thirty Years Later," Review of International Economics, Wiley Blackwell, vol. 2(3), pages 201-26, October.
  16. Joseph E. Gagnon, 1996. "Net foreign assets and equilibrium exchange rates: panel evidence," International Finance Discussion Papers 574, Board of Governors of the Federal Reserve System (U.S.).
  17. Bergstrand, Jeffrey H, 1991. "Structural Determinants of Real Exchange Rates and National Price Levels: Some Empirical Evidence," American Economic Review, American Economic Association, vol. 81(1), pages 325-34, March.
  18. Lane, Philip & Milesi-Ferretti, Gian Maria, . "External Wealth of Nations," Instructional Stata datasets for econometrics extwealth, Boston College Department of Economics.
  19. Irving B. Kravis & Robert E. Lipsey, 1982. "Towards an Explanation of National Price Levels," NBER Working Papers 1034, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. Peltonen, Tuomas A. & Sager, Michael, 2009. "Productivity shocks and real exchange rate: a reappraisal," Working Paper Series 1046, European Central Bank.
  2. Hoffmann, Mathias & Tillmann, Peter, 2012. "International financial integration and national price levels: The role of the exchange rate regime," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1503-1528.

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