Consumption Dynamics and Real Exchange Rate
The Paper investigates the role of the real exchange rate in relationships between consumption growth rates across countries when financial markets are integrated. The real exchange rate introduces a wedge between real marginal utilities of consumption in different countries and this wedge plays a prominent role in a number of new theories of international fluctuations. Yet, the role of the real exchange rate has been ignored in many previous studies of risk sharing and financial market integration. We find a limited role for the real exchange rate in these relationships. Special attention is also paid to the analysis of non-separabilities in the utility function including effects of money balances, leisure, government spending, and habit persistence. The results are also shown to be robust to decomposing consumption. The evidence may question the empirical plausibility of recent theories of international business cycles that associate a crucial role to the real exchange rate in breaking the direct link between consumption in different countries.
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.
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.
|Date of creation:||Sep 2001|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:2940. 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: ()
If references are entirely missing, you can add them using this form.