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2 edition of Terms of trade, productivity, and the real exchange rate found in the catalog.

Terms of trade, productivity, and the real exchange rate

Jose De Gregorio

Terms of trade, productivity, and the real exchange rate

by Jose De Gregorio

  • 251 Want to read
  • 3 Currently reading

Published by National Bureau of Economic Research in Cambridge, MA .
Written in English

    Subjects:
  • Foreign exchange rates -- Effect of terms of trade on.,
  • Foreign exchange rates -- Effect of industrial productivity on.

  • Edition Notes

    StatementJosé De Gregorio, Holger C. Wolf.
    SeriesNBER working paper series -- working paper no. 4807, Working paper series (National Bureau of Economic Research) -- working paper no. 4807.
    ContributionsWolf, Holger C., National Bureau of Economic Research.
    The Physical Object
    Pagination17, [1] p. :
    Number of Pages17
    ID Numbers
    Open LibraryOL22421259M

    This paper investigates whether terms of trade have an impact on real exchange rates for commodity exporters and oil exporters. To this end, we estimate a long term relationship between the real effective exchange rate and economic fundamentals, including the commodity terms of trade. The estimation relies on panel cointegration techniques and. The existing pattern of trade and specialization has made developing nations dependent on primary products, which has led to unstable export markets and declining terms of trade. true To promote stability in commodity markets, international commodity agreements have relied on production and export controls, buffer stocks, and multilateral.

      We revisit the time-honored link between productivity and the real exchange rate. Consistent with the traditional view, we find that higher labor productivity tends to lead to appreciation of the real exchange rate. Contrary to the traditional view, however, we find that the positive productivity effect is transmitted through the real exchange rate based on tradable prices, rather than through. Terms of trade and real exchange rate Terms of trade are the ratio of export prices to import prices, and they measure how much can be obtained in imports per unit of exports. Terms of trade are generally presented as an index based on a given base year and therefore show the proportional change in the price of exports and imports.

    The model features the usual transmission mechanism with terms of trade deterioration following increases in productivity.3 In addition, our estimated model generates, conditional on a tradable sector productivity shock, a real exchange rate depreciation and an increase in the ratio of relative consump-tions. Therefore, our results suggest that. Substituting in the numbers from above gives real exchange rate = ( X $6) / lira = bottles of Italian wine per bottle of American wine. By using both the nominal exchange rate and the real exchange rate, we can deduce important information about the relative cost of living in two countries.


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Terms of trade, productivity, and the real exchange rate by Jose De Gregorio Download PDF EPUB FB2

Terms of Trade, Productivity, and the Real Exchange Rate Jose De Gregorio, Holger C. Wolf. NBER Working Paper No. Issued in July NBER Program(s):International Finance and Macroeconomics The paper examines the effects of terms of trade movements and productivity differentials across sectors on the behavior of the real exchange by: Terms of trade, productivity, and the real exchange rate.

Cambridge, MA.: National Bureau of Economic Research, [] (OCoLC) Material Type: Internet resource: Document Type: Book, Internet Resource: All Authors / Contributors: José de Gregorio; Holger C Wolf; National Bureau of Economic Research.

The results of DEF model suggest that Real effective exchange rate is also negative, meanwhile GDP growth, Productivity, Net foreign assets, Trade openness, Terms of trade are positively predict.

The paper examines the effects of terms of trade movements and productivity differentials across sectors on the behavior of the real exchange rate.

We develop a simple model of a small open economy producing exportable and nontradable goods and consuming importable and nontradable goods and present empirical evidence for a sample of fourteen OECD countries. Terms of Trade, Productivity, and the Real Exchange Rate.

Jose De Gregorio and Holger C. Wolf. NoNBER Working Papers from National Bureau of Economic Research, Inc Abstract: The paper examines the effects of terms of trade movements and productivity differentials across sectors on the behavior of the real exchange rate.

We develop a simple model of a small open economy producing Cited by: Ehsan U. Choudhri & Lawrence L. Schembri, "Productivity, the Terms of Trade, and the Real Exchange Rate: Balassa-Samuelson Hypothesis Revisited," Carleton Economic PapersCarleton University, Department of Economics, revised Nov Handle: RePEc:car:carecp Small variations in the elasticity of substitution between home and foreign traded goods (within the range of estimates suggested in the literature), for example, can make the effect of a traded‐goods productivity improvement on the real exchange rate negative or positive, as well as small or large.

goods on the real exchange rate. A primary goal of this paper is to explore the conditions that determine the sign and the magnitude of the effect of a productivity improvement in traded goods on the terms of trade as well as the real exchange rate.

The elasticity of substitution between home and. This result provides a potential explanation of the mixed empirical results that have been obtained on the relationship between productivity and the real exchange rate. Published In: Review of International Economics () November Vol.

18, Iss. 5, pp. The real effective exchange rate is a basket of currencies and a weighted average based on how much the countries trade with the base currency. Limitations of the Real Effective Exchange Rate.

Since money exchange rates will vary fully with tradable goods productivity, but average productivity varies to a lesser extent, the (real goods) productivity differential is less than the productivity differential in money terms.

Productivity becomes income, so the real income varies less than the money income does. This is equivalent to. The Real Exchange Rate We begin our investigation of the relationship between productivity gains and the strong dollar with a brief look at how we measure the value of a currency.

The best gauge of this value is a currency’s real exchange rate against a foreign currency. The real exchange rate—defined as the nominal exchange rate adjusted for. BibTeX @MISC{Choudhri09productivity,the, author = {Ehsan U.

Choudhri and Lawrence L. Schembri}, title = {PRODUCTIVITY, THE TERMS OF TRADE, AND THE REAL EXCHANGE RATE: BALASSA AND SAMUELSON HYPOTHESIS REVISITED}, year = {}}. Changes in real exchange rate.

If a country experiences rapid productivity growth, then it can enable lower costs and lower price level, this will help to reduce the real exchange rate. Misaligned real exchange rates.

Suppose that prices in country A increase, this decreases the real exchange rate. Adjustment of the Real Exchange Rate to Permanent Terms-of-Trade Shocks Assume now that tott increases for all t ≥ 0. Then equilibrium conditions (10) and (11) imply that ∂pn ∂tot permanent = yx yn P0 cm yn. The intuition is the same as with temporary shocks.

However, per-manent changes in the terms of trade have a larger effect on the. Thus high-productivity growth in tradables may simultaneously cause appreciation of the real exchange rate and weakening of the terms of trade.

2 The role of goods variety in international trade is emphasized in Gagnon (), which documents that the growth of U.S. bilateral manufactured imports is strongly correlated with the average growth.

This paper surveys a wide body of economic literature on the relationship between exchange rates and trade. Specifically, two main issues are investigated: the impact of exchange rate volatility and of currency misalignments on international trade flows.

On average, exchange rate volatility has a negative (even if not large) impact on trade. The change in real effective exchange rate varied from one province to others in China.

This disparity results from two factors (Guillaumont Jeanneney & Hua,Guillaumont Jeanneney & Hua, ).The first one is the diversity of their foreign trade partners, as each province tends to trade more with its border countries.

16 Therefore the weighting of the foreign currencies is different. Get this from a library. Terms of trade, productivity, and the real exchange rate.

[José de Gregorio; Holger C Wolf; National Bureau of Economic Research.] -- Abstract: The paper examines the effects of terms of trade movements and productivity differentials across sectors on the behavior of the real exchange rate. We develop a simple model of a small open. Philip R.

and Gian Maria M-F.,also highlighted that the relative price of non-traded goods was the important channel that links trade balance and the real exchange rate in their investigation.

A weak or devalued real exchange rate was at the center of the authors’ discussion, for a country to run a trade.

An overly appreciated exchange rate may distort production in favor of nontradables and against one currency expressed in terms Focus on the multilateral real exchange rate that is consistent with current account (CA) balance.The terms of trade (TOT) is the relative price of exports in terms of imports and is defined as the ratio of export prices to import prices.

It can be interpreted as the amount of import goods an economy can purchase per unit of export goods. An improvement of a nation's terms of trade benefits that country in the sense that it can buy more imports for any given level of exports.Adopting comparative statics, we find that the productivity improvement in the production of tradable goods will leading to two opposing effects on equilibrium real exchange rate, worsening terms of trade and an increasing relative price of non-tradable goods to tradable goods, ceteris paribus.