Real Exchange Rates and Sectoral Productivity in the Eurozone

Martin Berka; Michael B. Devereux; Charles Engel

doi:10.1257/aer.20151045

journal article Jun 01, 2018

Real Exchange Rates and Sectoral Productivity in the Eurozone

Martin Berka Michael B. Devereux Charles Engel

American Economic Review Vol. 108 No. 6 pp. 1543-1581 · American Economic Association

View at Publisher Save 10.1257/aer.20151045

Abstract

We investigate the link between real exchange rates and sectoral TFP for eurozone countries. We show that real exchange rate variation, both cross-country and time-series, closely accords with an amended Balassa-Samuelson interpretation, incorporating sectoral productivity shocks and a labor market wedge. We construct a DSGE model to generate a cross section and time series of real exchange rates to compare to data. Estimates from simulated regressions are very similar to estimates for eurozone data. Our findings contrast with previous studies that have found little relationship between productivity and real exchange rates among high-income countries that have floating nominal exchange rates. (JEL E12, E23, E24, F31, F33, F43)

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Details

Published: Jun 01, 2018
Vol/Issue: 108(6)
Pages: 1543-1581

Authors

M

Martin Berka

Massey University, Private Bag 11 222, Palmerston North, 4442, New Zealand (email: )

M

Michael B. Devereux

University of British Columbia, 2328 West Mall, Vancouver, BC V6T 1Z4, Canada (email: )

C

Charles Engel

Department of Economics, University of Wisconsin, 1180 Observatory Drive, Madison, WI 53706 (email: )

Cite This Article

Martin Berka, Michael B. Devereux, Charles Engel (2018). Real Exchange Rates and Sectoral Productivity in the Eurozone. American Economic Review, 108(6), 1543-1581. https://doi.org/10.1257/aer.20151045

Real Exchange Rates and Sectoral Productivity in the Eurozone

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