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The Volatility of the Tradeable and Nontradeable Sectors: Theory and Evidence

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  • Laura Povoledo

Abstract

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 re¬produce the observed fluctuations qualitatively. The answer is positive: both in the model and in the data the standard deviations of tradeable inflation, out¬put and employment are significantly higher than the standard deviations of the corresponding nontradeable sector variables. A key role in generating this result is played by the greater responsiveness of tradeable sector variables to monetary shocks.

Suggested Citation

  • Laura Povoledo, 2009. "The Volatility of the Tradeable and Nontradeable Sectors: Theory and Evidence," CDMA Conference Paper Series 0901, Centre for Dynamic Macroeconomic Analysis.
    • Handle: RePEc:san:cdmacp:0901
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    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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