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Intermediate Goods and Exchange Rate Disconnect

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  • Craighead, William

Abstract

This paper introduces intermediate goods trade into a two-country real business cycle model and examines its implications for real exchange rate behavior. Intermediate goods trade is shown to reduce “exchange rate disconnect” by increasing the volatility of the real exchange rate relative to output and weakening the link between the real exchange rate and output. Intermediate goods trade also raises international output correlations and reduces the correlation between the trade balance and output.

Suggested Citation

  • Craighead, William, 2017. "Intermediate Goods and Exchange Rate Disconnect," MPRA Paper 83075, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:83075
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    2. Yuwan Duan & Yanping Zhao & Jakob Haan, 2020. "Exchange Rate Pass-through in China: A Cost-Push Input-Output Price Model," Open Economies Review, Springer, vol. 31(3), pages 513-528, July.

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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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