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Real Exchange Rate Fluctuations, Wage Stickiness and Tradability

  • Yothin Jinjarak
  • Kanda Naknoi

This study proposes a new measure of tradability and examines its relationship with volatility of the sector-speci c real exchange rate (RER). We derive degree of tradability from a model in which nal goods are produced from labor, capital and intermediate inputs. With free capital mobility, the share of labor in value added measures degree of nontradability. Then the RER is driven by changes in relative wage and those in seller's markup. The contribution of relative wage into RER variance is predicted to be increasing in nontradability. We provide evidence for our theory using U.S.-Canada monthly RERs and U.S.-Germany quarterly RERs.

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File URL: http://www.krannert.purdue.edu/programs/phd/Working-paper-series/Year-2010/1255.pdf
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Paper provided by Purdue University, Department of Economics in its series Purdue University Economics Working Papers with number 1255.

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Length: 36 pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:pur:prukra:1255
Contact details of provider: Postal: Krannert Building, West Lafayette, IN 47907
Web page: http://www.krannert.purdue.edu/programs/phd

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  1. Yuriy Gorodnichenko & Enrique G. Mendoza & Linda L. Tesar, 2012. "The Finnish Great Depression: From Russia with Love," American Economic Review, American Economic Association, vol. 102(4), pages 1619-44, June.
  2. Mario J. Crucini & Mototsugu Shintani, 2006. "Persistence in Law-of-One-Price Deviations: Evidence from Micro-data," Levine's Bibliography 321307000000000311, UCLA Department of Economics.
  3. Ariel T. Burstein & Joao C. Neves & Sergio Rebelo, 2000. "Distribution Costs and Real Exchange Rate Dynamics During Exchange-Rate-Based Stabilizations," RCER Working Papers 473, University of Rochester - Center for Economic Research (RCER).
  4. Sergio Rebelo & Ariel Burstein & Martin Eichenbaum, 2004. "Large Devaluations and the Real Exchange Rate," 2004 Meeting Papers 137, Society for Economic Dynamics.
  5. Kehoe, Timothy J. & Ruhl, Kim J., 2009. "Sudden stops, sectoral reallocations, and the real exchange rate," Journal of Development Economics, Elsevier, vol. 89(2), pages 235-249, July.
  6. Kanda Naknoi, 2005. "Real exchange rate fluctuations, endogenous tradability and exchange rate regime," International Finance 0509004, EconWPA, revised 07 Nov 2005.
  7. Engel, C., 1996. "Accounting for U.S. Real Exchange Rate Changes," Working Papers 96-02, University of Washington, Department of Economics.
  8. 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.
  9. Yin-Wong Cheung & Eiji Fujii, 2008. "Deviations from the Law of One Price in Japan," CESifo Working Paper Series 2275, CESifo Group Munich.
  10. Liu, Zheng & Phaneuf, Louis, 2007. "Technology shocks and labor market dynamics: Some evidence and theory," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2534-2553, November.
  11. Sara G. Castellanos & Rodrigo Garcia-Verdu & David S. Kaplan, 2004. "Nominal Wage Rigidities in Mexico: Evidence from Social Security Records," NBER Working Papers 10383, National Bureau of Economic Research, Inc.
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