English, Article, Journal or magazine article edition: Nontraded Goods, Market Segmentation, and Exchange Rates Michael Dotsey; Margarida Duarte

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Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Nontraded Goods, Market Segmentation, and Exchange Rates
Author
  • Michael Dotsey
  • Margarida Duarte
Physical Description
  • preprint
Notes
  • Empirical evidence suggests that movements in international relative prices are large and persistent. Nontraded goods, both in the form of final consumption goods and as an input into the production of final tradable goods, are an important aspect behind international relative price movements. In this paper we show that nontraded goods play an important role in the context of an otherwise standard open-economy macro model. Our quantitative study with nontraded goods generates implications along several dimensions that are more closely in line with the data relative to the model that abstracts from nontraded goods. In addition, contrary to a large literature, standard alternative assumptions about the currency in which firms price their goods are virtually inconsequential for the properties of aggregate variables in our model, other than the terms of trade.
  • RePEc:tor:tecipa:tecipa-281
  • Markets ; Foreign exchange rates
  • RePEc:fip:fedpwp:06-9
  • Empirical evidence suggests that movements in international relative prices are large and persistent. Nontraded goods, both in the form of final consumption goods and as an input into the production of final tradable goods, are an important aspect driving international relative price movements. In this paper we show that nontraded goods play an important role in the context of an otherwise standard open-economy macromodel. Our quantitative study with nontraded goods generates implications along several dimensions that are more closely in line with the data relative to the model that abstracts from nontraded goods. In addition, contrary to a large literature, standard alternative assumptions about the currency in which firms price their goods are virtually inconsequential for the properties of aggregate variables in our model, other than the terms of trade.
  • exchange rates; nontraded goods; distribution services; incomplete asset markets.
  • RePEc:tor:tecipa:tecipa-338
  • Empirical evidence suggests that movements in international relative prices (such as the real exchange rate) are large and persistent. Nontraded goods, both in the form of final consumption goods and as an input into the production of final tradable goods, are an important aspect behind international relative price movements. In this paper we show that nontraded goods have important implications for exchange rate behavior, even though fluctuations in the relative price of nontraded goods account for a relatively small fraction of real exchange rate movements. In our quantitative study nontraded goods magnify the volatility of exchange rates when compared to the model without nontraded goods. Cross-country correlations and the correlation of exchange rates with other macro variables are closer in line with the data. In addition, contrary to a large literature,standard alternative assumptions about the currency in which firms price their goods are virtually inconsequential for the properties of aggregate variables in our model, other than the terms of trade.
  • Trade
  • RePEc:fip:fedrwp:06-03
  • Empirical evidence suggests that international goods markets are highly segmented (even for traded goods). Nontraded goods, both in the form of final consumption goods and as an input into the production of final tradable goods, may be an important aspect of market segmentation across countries. In this paper we show that nontraded goods have important implications for exchange rate behavior, even though fluctuations in the relative price of nontraded goods account for a relatively small fraction of real exchange rate movements. In our quantitative study nontraded goods increase the volatility of exchange rates by about 40 percent or more when compared to the model without nontraded goods. Moreover, cross-country correlations and the correlation of exchange rates with other macro variables are closer in line with the data. In addition, contrary to a large literature, standard alternative assumptions about the currency in which firms price their goods are virtually inconsequential for the properties of aggregate variables in our model, other than the terms of trade
  • RePEc:red:sed006:321
Language
  • English
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