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Modelling the sectoral allocation of labour in open economy models

  • Povoledo, Laura

This paper presents an open economy model with tradeable and nontradeable sectors in which households cannot supply labour in both sectors at the same time. In this economy, the Frisch elasticity of labour supply is infinite. I analyse how the infinite labour supply elasticity interacts with the Producer Currency Pricing (PCP) and Local Currency Pricing (LCP) assumptions, and I find that it does not significantly alter the empirical performance of the model with respect to a broad range of statistics.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 40344.

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Date of creation: 06 Jun 2012
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Handle: RePEc:pra:mprapa:40344
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  1. Maurice Obstfeld & Kenneth S. Rogoff, 2005. "Global Current Account Imbalances and Exchange Rate Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(1), pages 67-146.
  2. Giancarlo Corsetti & Paolo Pesenti, 1997. "Welfare and Macroeconomic Interdependence," NBER Working Papers 6307, National Bureau of Economic Research, Inc.
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  4. Maurice Obstfeld and Kenneth Rogoff., 1999. "New Directions for Stochastic Open Economy Models," Center for International and Development Economics Research (CIDER) Working Papers C99-107, University of California at Berkeley.
  5. Sutherland, Alan, 2005. "Incomplete pass-through and the welfare effects of exchange rate variability," Journal of International Economics, Elsevier, vol. 65(2), pages 375-399, March.
  6. Chetty, Nadarajan & Weber, Andrea & Guren, Adam Michael & Day, Manoli, 2011. "Are Micro and Macro Labor Supply Elasticities Consistent? A Review of Evidence on the Intensive and Extensive Margins," Scholarly Articles 11878970, Harvard University Department of Economics.
  7. Benigno, Pierpaolo, 2001. "Price Stability with Imperfect Financial Integration," CEPR Discussion Papers 2854, C.E.P.R. Discussion Papers.
  8. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1996. "Sticky Price Models of the Business Cycle: Can the Contract Multiplier Solve the Persistence Problem?," NBER Working Papers 5809, National Bureau of Economic Research, Inc.
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  10. Chari, V V & Kehoe, Patrick J & McGrattan, Ellen R, 2002. "Can Sticky Price Models Generate Volatile and Persistent Real Exchange Rates?," Review of Economic Studies, Wiley Blackwell, vol. 69(3), pages 533-63, July.
  11. Kollmann, Robert, 2009. "Government Purchases and the Real Exchange Rate," CEPR Discussion Papers 7427, C.E.P.R. Discussion Papers.
  12. Jordi Gal´┐Ż & Tommaso Monacelli, 2005. "Monetary Policy and Exchange Rate Volatility in a Small Open Economy," Review of Economic Studies, Oxford University Press, vol. 72(3), pages 707-734.
  13. Burnside, Craig & Eichenbaum, Martin, 1996. "Factor-Hoarding and the Propagation of Business-Cycle Shocks," American Economic Review, American Economic Association, vol. 86(5), pages 1154-74, December.
  14. Maurice Obstfeld and Kenneth Rogoff., 1995. "Exchange Rate Dynamics Redux," Center for International and Development Economics Research (CIDER) Working Papers C95-048, University of California at Berkeley.
  15. Maurice Obstfeld & Kenneth Rogoff, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Working Papers 7777, National Bureau of Economic Research, Inc.
  16. Povoledo, Laura, 2009. "The Volatility of the Tradeable and Nontradeable Sectors: Theory and Evidence," MPRA Paper 14852, University Library of Munich, Germany, revised Feb 2009.
  17. Mahbub Morshed, A.K.M. & Turnovsky, Stephen J., 2011. "Real exchange rate dynamics: The role of elastic labor supply," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1303-1322.
  18. Lars Ljungqvist & Thomas J. Sargent, 2011. "A Labor Supply Elasticity Accord?," American Economic Review, American Economic Association, vol. 101(3), pages 487-91, May.
  19. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  20. Gianluca Benigno & Christoph Thoenissen, 2003. "Equilibrium Exchange Rates and Supply-Side Performance," Economic Journal, Royal Economic Society, vol. 113(486), pages C103-C124, March.
  21. Robert Kollmann, 2001. "The exchange rate in a dynamic-optimizing business cycle model with nominal rigidities: a quantitative investigation," ULB Institutional Repository 2013/7630, ULB -- Universite Libre de Bruxelles.
  22. Raffo, Andrea, 2008. "Net exports, consumption volatility and international business cycle models," Journal of International Economics, Elsevier, vol. 75(1), pages 14-29, May.
  23. 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.
  24. Richard Rogerson, 2010. "Indivisible Labor, Lotteries and Equilibrium," Levine's Working Paper Archive 250, David K. Levine.
  25. Povoledo, Laura, 2013. "A Note On The Volatility Of The Tradeable And Nontradeable Sectors," Macroeconomic Dynamics, Cambridge University Press, vol. 17(05), pages 1158-1168, July.
  26. Zuzana Janko, 2011. "A dynamic small open economy model with involuntary unemployment," Canadian Journal of Economics, Canadian Economics Association, vol. 44(4), pages 1350-1368, November.
  27. Lawrence J. Christiano & Mathias Trabandt & Karl Walentin, 2010. "DSGE models for monetary policy analysis," CQER Working Paper 2010-02, Federal Reserve Bank of Atlanta.
  28. Michael B. Devereux & Viktoria Hnatkovska, 2012. "The extensive margin, sectoral shares, and international business cycles," Canadian Journal of Economics, Canadian Economics Association, vol. 45(2), pages 509-534, May.
  29. Parantap Basu & Robert Kollmann, 2013. "Productive Government Purchases And The Real Exchange Rate," Manchester School, University of Manchester, vol. 81(4), pages 461-469, 07.
  30. Dudley Cooke, 2010. "Openness and Inflation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(2-3), pages 267-287, 03.
  31. Betts, Caroline & Devereux, Michael B., 1996. "The exchange rate in a model of pricing-to-market," European Economic Review, Elsevier, vol. 40(3-5), pages 1007-1021, April.
  32. Betts, Caroline & Devereux, Michael B., 2000. "Exchange rate dynamics in a model of pricing-to-market," Journal of International Economics, Elsevier, vol. 50(1), pages 215-244, February.
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