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Thursday, August 6, 2020 | History

2 edition of Does productivity growth lead to appreciation of the real exchange rate? found in the catalog.

Does productivity growth lead to appreciation of the real exchange rate?

Jaewoo Lee

Does productivity growth lead to appreciation of the real exchange rate?

by Jaewoo Lee

  • 340 Want to read
  • 32 Currently reading

Published by International Monetary Fund, Research Department in Washington, D.C .
Written in English

    Subjects:
  • Labor productivity.,
  • Industrial productivity.,
  • Foreign exchange rates.,
  • Prices.

  • Edition Notes

    StatementJaewoo Lee and Man-Keung Tang.
    SeriesIMF working paper -- WP/03/154
    ContributionsTang, Man-Keung., International Monetary Fund. Research Dept.
    The Physical Object
    Pagination39 p. :
    Number of Pages39
    ID Numbers
    Open LibraryOL21062856M

    Figure 1 shows the relationship between productivity growth and exchange rate ⁄exibil-ity for countries at di⁄erent levels of –nancial development. The upper graphs consider the volatility of the e⁄ective real exchange rate and the lower graphs deal with the exchange rate 1The classic paper is Baxter and Stockman (). In their survey. Figure shows the relationship between the economic growth rate and changes in the real exchange rate for the APEC countries for the period (except for Chile, where the sample period is ).3 The positive relationship between economic growth and real appreciation that is a hallmark.

    DANI RODRIK Figure 1. Undervaluation and Economic Growth in Selected Developing Countries, – China 0 4 2 6 8 – – – 0 Log units Percent a year. (). One argument in defense of OLS regressions of economic growth on the real exchange rate is that the direction of the possible reverse causality, i.e. a positive link between growth and real exchange rate appreciation, plays against –nding negative and signi–cant coe¢ cients for the impact of exchange rates on growth. However, the.

    Some of the exchange rate determination theories, such as the monetary approach to exchange rates, predict that higher growth rates in a country lead to an appreciation of this country’s currency. The figure illustrates the relationship between percent change in the yen–dollar exchange rate and growth rates in Japan’s real GDP. In its original formulation, it states that a country will experience an appreciation of the equilib-rium real exchange rate (i.e. an increase of home prices relative to foreign prices) when an increase in productivity in the traded sector leads to an increase in local wages in .


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Does productivity growth lead to appreciation of the real exchange rate? by Jaewoo Lee Download PDF EPUB FB2

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 Cited by: Downloadable.

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.

Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. 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.

In particular, while higher labour productivity tends to lead to real exchange rate appreciation, which is consistent with the traditional view that richer countries have stronger exchange rates. Does Productivity Growth Lead to Appreciation of the Real Exchange Rate.

Article (PDF Available) September with Reads How we measure 'reads'. Does Productivity Growth Lead to Appreciation of the Real Exchange Rate. By Jaewoo Lee and Man-Keung Tang. Abstract. 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. For example, productivity gains may lead to an appreciation of the real exchange rate which, ceteris paribus, is detrimental to growth through the trade channel, but may have an overall positive effect on domestic production. The exchange rate-growth link depends on the underlying shock.

i find the topic of real exchange rate appreciation / depreciation often not very well explained. even the excerpt below from the following accepted answer on this website is not correct in my opinion. The home currency appreciates in real terms against a foreign currency either if the home currency appreciates in nominal terms or if the home country's inflation rate is lower than that in the.

Quoting the abstract: "an increase in the productivity and competitiveness of the distribution sector with respect to foreign countries leads to an appreciation of the real exchange rate, similarly to what a relative increase in the domestic productivity of tradables does".

The real exchange rate shows what you can actually buy. It is the value consumers will actually pay for a good. RER = E.R *(price level in country A/Price level in country B) Increase in real exchange rate.

If a countries real exchange rate is rising, it means its goods are becoming more expensive relative to its competitors.

and Samuelson () has shown that productivity growth will lead to a real exchange rate appreciation only if it is concentrated in the traded sector of an econ-omy. Productivity growth that has been equally strong in the traded and nontraded sectors will have no effect on the real exchange rate.

Box 1: A Simple Theoretical Framework. Title: Does Productivity Growth Lead to Appreciation of the Real Exchange Rate. - WP/03/ Created Date: 8/11/ PM. The next equation reflects this concept: Here, RER, P E, and P US indicate the real exchange rate, the price of the Euro-zone’s consumption basket, and the price of the U.S.

consumption basket, respectively. Consider a numerical example for the RER. Assume that the dollar–euro exchange rate is $ per euro, P E (the price of the Euro-zone’s consumption basket) is €, and P US (the. 1. Introduction. Exchange rates and the choice of the exchange rate regime retain a centre stage in the post-crisis environment especially for emerging economies (Klein and Shambaugh,Rose,Ghosh et al., ).In particular, there is a significant divide between policy-makers and economists regarding the impact of foreign exchange policies on growth.

Does Productivity Growth Appreciate the Real Exchange Rate. Review of International Economics, Vol. 15, No. 1, pp.February 24 Pages Posted: 31 Jan Our econometric estimates indicate that a real exchange rate appreciation had a negative effect on labour productivity growth once a firm's export exposure was greater than 14 per cent.

When a firm's import exposure exceeded 33 per cent, a real exchange rate appreciation had a positive effect on labour productivity. This causes an inflow of foreign exchange into the economy. Typically, a large current account surplus will cause an appreciation in the exchange rate (unless there is a similarly large outflow on financial and capital account) 6.

Higher Economic Growth. Stronger economic growth tends to cause an appreciation in the exchange rate. With floating exchange rates, relatively high productivity growth for a nation leads to a. Exchange rate depreciation in the short run b.

Exchange rate appreciation in the short run c. Exchange rate depreciation in the long run d. Exchange rate appreciation in the long run.

productivity growth,it is often said that productivity growth leads to real appreciation. Since the link between (tradables) productivity and the real exchange rate was for-mulated by Balassa () and Samuelson ()—also traced back to Harrod ()—this celebrated Harrod–Balassa–Samuelson (HBS) effect has formed the cor.

Proposition 1 highlights two conditions that have to be satisfied for a country to experience a real exchange rate appreciation (assuming that the tradable sector is capital-intensive): (1) there is a higher productivity growth in the tradable sector; (2) with frictional costs in the labor market (γ ¯ ≠ 0), relative frictional costs in the.

years. 1 Explanations of persistent real exchange rate changes have often followed the lead of Balassa () and Samuelson (), who divide national output into traded and nontraded goods and explain real exchange rates in terms of sectoral productivity.

The Balassa-Samuelson hypothesis divides real exchange rate movements into two components.Revisiting the time-honored link between productivity growth and the real exchange rate, we find that higher labor productivity tends to appreciate the real exchange rate, consistent with the traditional view.

Contrary to the traditional view, however, we find that the positive productivity effect is transmitted through the relative price.uate the di erent mechanisms by providing counterfactual simulations of temporary real exchange rate movements.

E ects on physical TFP growth, while di erent across regions, are non-linear and asymmetric. JEL Codes: F, O.

Key Words: real exchange rate, rm level data, innovation, productivity, exporting, importing, credit constraints.