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Real Exchange Rate Fluctuations, Wage Stickiness and Tradability

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  • Yothin Jinjarak
  • Kanda Naknoi

Abstract

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.

Suggested Citation

  • Yothin Jinjarak & Kanda Naknoi, 2010. "Real Exchange Rate Fluctuations, Wage Stickiness and Tradability," Purdue University Economics Working Papers 1255, Purdue University, Department of Economics.
    • Handle: RePEc:pur:prukra:1255
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    JEL classification:

    • L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L42 - Industrial Organization - - Antitrust Issues and Policies - - - Vertical Restraints; Resale Price Maintenance; Quantity Discounts

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