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Real Exchange Rates in Growing Economies; How Strong is the Role of the Nontradables Sector?

  • Ken Miyajima

This paper emphasizes the importance of total factor productivity (TFP) developments in the nontradables sector to quantitatively demonstrate that the time-honored Balassa-Samuelson hypothesis does not generally apply to episodes of economic growth. Though the Balassa- Samuelson hypothesis postulates that strong economic growth should, in general, be accompanied by a real appreciation in exchange rates, this paper does not find such systematic links. This is because some growth spurts are marked by equal TFP gains in both the tradables and nontradables sectors, and others by larger TFP gains in the nontradables sector.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/233.

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Length: 35
Date of creation: 01 Dec 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/233
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  1. Jose De Gregorio & Holger C. Wolf, 1994. "Terms of Trade, Productivity, and the Real Exchange Rate," Working Papers 94-19, New York University, Leonard N. Stern School of Business, Department of Economics.
  2. Menzie David Chinn, 1997. "The Usual Suspects? Productivity and Demand Shocks and Asia-Pacific Real Exchange Rates," NBER Working Papers 6108, National Bureau of Economic Research, Inc.
  3. Jason Barro & David M. Cutler, 2000. "Consolidation in the Medical Care Marketplace,A Case Study from Massachusetts," NBER Chapters, in: Mergers and Productivity, pages 9-50 National Bureau of Economic Research, Inc.
  4. Hsieh, David A., 1982. "The determination of the real exchange rate : The productivity approach," Journal of International Economics, Elsevier, vol. 12(3-4), pages 355-362, May.
  5. Takatoshi Ito & Peter Isard & Steven Symansky, 1997. "Economic Growth and Real Exchange Rate: An Overview of the Balassa-Samuelson Hypothesis in Asia," NBER Working Papers 5979, National Bureau of Economic Research, Inc.
  6. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
  7. Matthew B. Canzoneri & Robert E. Cumby & Behzad Diba, 1996. "Relative Labor Productivity and the Real Exchange Rate in the Long Run: Evidence for a Panel of OECD Countries," NBER Working Papers 5676, National Bureau of Economic Research, Inc.
  8. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
  9. Arnold C. Harberger, 1989. "Applications Of Real Exchange Rate Analysis," Contemporary Economic Policy, Western Economic Association International, vol. 7(2), pages 1-26, 04.
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