IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Real rigidities and real exchange rate volatility

  • Craighead, William D.

This paper shows that certain real rigidities can help explain high volatility of real exchange rates relative to other macroeconomic aggregates. An international real business cycle model is used to demonstrate that real exchange rate volatility increases if (i) it is costly to move labor between sectors and (ii) the consumption of tradable goods requires distribution services. Model dynamics are generated by shocks to productivity and preferences based on sectoral output, employment and consumption data from G-7 countries. The introduction of intersectoral adjustment and distribution costs substantially increases the real exchange rate volatility generated by the model.

If 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.

File URL: http://www.sciencedirect.com/science/article/pii/S0261-5606(08)00135-6
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 28 (2009)
Issue (Month): 1 (February)
Pages: 135-147

as
in new window

Handle: RePEc:eee:jimfin:v:28:y:2009:i:1:p:135-147
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

References listed on IDEAS
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.:

as in new window
  1. Burstein, Ariel T. & Neves, Joao C. & Rebelo, Sergio, 2003. "Distribution costs and real exchange rate dynamics during exchange-rate-based stabilizations," Journal of Monetary Economics, Elsevier, vol. 50(6), pages 1189-1214, September.
  2. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
  3. Maurice Obstfeld and Kenneth Rogoff., 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research (CIDER) Working Papers C00-112, University of California at Berkeley.
  4. Ariel Burstein & Martin Eichenbaum & Sergio Rebelo, 2005. "The Importance of Nontradable Goods' Prices in Cyclical Real Exchange Rate Fluctuations," NBER Working Papers 11699, National Bureau of Economic Research, Inc.
  5. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1998. "Can sticky price models generate volatile and persistent real exchange rates?," Staff Report 223, Federal Reserve Bank of Minneapolis.
  6. Burgess, Simon M & Dolado, Juan J, 1989. "Intertemporal Rules with Variable Speed of Adjustment: An Application to U.K. Manufacturing Employment," Economic Journal, Royal Economic Society, vol. 99(396), pages 347-65, June.
  7. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1991. "International real business cycles," Staff Report 146, Federal Reserve Bank of Minneapolis.
  8. 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.
  9. A.K.M. Mahbub Morshed & Stephen Turnovsky, 2003. "Sectoral Adjustment Costs and Real Exchange Rate Dynamics in a Two-Sector Dependent Economy," Working Papers UWEC-2002-17-P, University of Washington, Department of Economics, revised Jan 2003.
  10. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
  11. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1994. "Dynamics of the Trade Balance and the Terms of Trade: The J-Curve?," American Economic Review, American Economic Association, vol. 84(1), pages 84-103, March.
  12. Ray C. Fair, 1984. "Excess Labor and the Business Cycle," NBER Working Papers 1292, National Bureau of Economic Research, Inc.
  13. Giancarlo CORSETTI & Luca DEDOLA & Sylvain LEDUC, 2003. "International Risk-Sharing and the Transmission of Productivity Shocks," Economics Working Papers ECO2003/22, European University Institute.
  14. PFANN, Gerard & PALM, Franz, 1992. "Asymmetric adjustment costs in non-linear labour demand models for the Netherlands and UK manufacturing sectors," CORE Discussion Papers 1992017, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  15. Fay, Jon A & Medoff, James L, 1985. "Labor and Output over the Business Cycle: Some Direct Evidence," American Economic Review, American Economic Association, vol. 75(4), pages 638-55, September.
  16. Engel, C., 1996. "Accounting for U.S. Real Exchange Rate Changes," Working Papers 96-02, University of Washington, Department of Economics.
  17. King, Robert G & Watson, Mark W, 2002. "System Reduction and Solution Algorithms for Singular Linear Difference Systems under Rational Expectations," Computational Economics, Society for Computational Economics, vol. 20(1-2), pages 57-86, October.
  18. Donghoon Lee & Kenneth I. Wolpin, 2006. "Intersectoral Labor Mobility and the Growth of the Service Sector," Econometrica, Econometric Society, vol. 74(1), pages 1-46, 01.
  19. de Cordoba, Gonzalo Fernandez & Kehoe, Timothy J., 2000. "Capital flows and real exchange rate fluctuations following Spain's entry into the European Community," Journal of International Economics, Elsevier, vol. 51(1), pages 49-78, June.
  20. Gavin, Michael, 1990. "Structural adjustment to a terms of trade disturbance : The role of relative prices," Journal of International Economics, Elsevier, vol. 28(3-4), pages 217-243, May.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:jimfin:v:28:y:2009:i:1:p:135-147. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.