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- Title
Supply Shocks, Non-traded Goods and the Real Exchange Rate in a Small Open Economy Model.
- Authors
Azcona, Nestor
- Abstract
This paper studies the effect of overall and sector-specific productivity shocks on the real exchange rate in small open economies. A dynamic stochastic general equilibrium model shows that productivity shocks impact the real exchange rate mostly through changes in the relative price of non-traded goods, and are unable to explain the large deviations from purchasing power parity for traded goods prices found in the data. This paper also shows how the effect of different shocks on the real exchange rate changes when a country adopts a fixed exchange rate regime.
- Subjects
ECONOMIC shock; NONTRADED goods; FOREIGN exchange rates; FREE trade; ECONOMIC models; PURCHASING power
- Publication
Proceedings of the Northeast Business & Economics Association, 2013, p13
- ISSN
1936-203X
- Publication type
Article