Equilibrium exchange rates and supply-side performance / Gianluca Benigno and Christoph Thoenissen Benigno, Gianluca

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Author
Benigno, Gianluca
Appears In
Economic Journal
Subjects
Foreign exchange rates - Econometric models.; Electronic resource.; Purchasing power parity - Econometric models.
Audience
Academic; Trade
Summary
We develop a two-country, optimising, sticky prices and sticky wages model of real exchange rate determination in the new open macroeconomics tradition to analyse the interaction between supply-side behaviour, market structure and the real exchange rate. For a UK-euro area calibration, supply-side improvements to total factor productivity (TFP) or the degree of monopolistic competition in the goods and labour markets result in a depreciation of the real exchange rate. When TFP increases in the traded goods sector, a depreciation of the terms of trade offsets the appreciation of the relative price of non-traded goods, contrasting with the Balassa-Samuelson proposition.
Bookmark
http://trove.nla.gov.au/work/208850
Work ID
208850

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