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Volatility of the Tradeable and Non-Tradeable Sectors: Theory and evidence

  • Laura Povoledo

    ()

    (Department of Economics, University of Reading)

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    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: the model-implied standard deviations are consistent with the pattern in the data. In particular, tradeable output is more volatile than nontradeable output. A key role in generating this result is played by the greater responsiveness of tradeable output to monetary shocks. Parameter estimates are obtained by Generalised Method of Moments.

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    Paper provided by Henley Business School, Reading University in its series Economic Analysis Research Group Working Papers with number earg-wp2007-10.

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    Length: 54 pages
    Date of creation: 2007
    Date of revision:
    Handle: RePEc:rdg:eargwp:earg-wp2007-10
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