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

  • Povoledo, Laura

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://mpra.ub.uni-muenchen.de/14852/2/MPRA_paper_14852.pdf
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File URL: http://mpra.ub.uni-muenchen.de/23047/2/MPRA_paper_23047.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14852.

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Date of creation: Feb 2009
Date of revision: Feb 2009
Handle: RePEc:pra:mprapa:14852
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  1. Hamid Faruqee & Douglas Laxton & Dirk Muir & Paolo Pesenti, 2005. "Smooth landing or crash? model based scenarios of global current account rebalancing," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
  2. Maurice Obstfeld & Kenneth Rogoff, 1994. "Exchange Rate Dynamics Redux," NBER Working Papers 4693, National Bureau of Economic Research, Inc.
  3. Simon Wren-Lewis & Campbell Leith, 2007. "The Optimal Monetary Policy Response to Exchange Rate Misalignments," Economics Series Working Papers 305, University of Oxford, Department of Economics.
  4. 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, vol. 29(3), pages 419-30, August.
  5. Gianluca Benigno & Christoph Thoenissen, 2003. "Equilibrium Exchange Rates and Supply-Side Performance," Economic Journal, Royal Economic Society, vol. 113(486), pages C103-C124, March.
  6. Kenneth Rogoff & William Brainard & George Perry, . "Global Current Account Imbalances and Exchange Rate Adjustments," Working Paper 33687, Harvard University OpenScholar.
  7. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, 09.
  8. Lane, Philip R., 1999. "The New Open Economy Macroeconomics: a Survey," CEPR Discussion Papers 2115, C.E.P.R. Discussion Papers.
  9. Giancarlo Corsetti & Paolo Pesenti, 2001. "International Dimensions of Optimal Monetary Policy," NBER Working Papers 8230, National Bureau of Economic Research, Inc.
  10. Thomas Lubik & Frank Schorfheide, 2005. "A Bayesian Look at New Open Economy Macroeconomics," Economics Working Paper Archive 521, The Johns Hopkins University,Department of Economics.
  11. Caroline M. Betts & Timothy J. Kehoe, 2004. "U.S. real exchange rate fluctuations and relative price fluctuations," Staff Report 334, Federal Reserve Bank of Minneapolis.
  12. Bergin, Paul R., 2003. "Putting the 'New Open Economy Macroeconomics' to a test," Journal of International Economics, Elsevier, vol. 60(1), pages 3-34, May.
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