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2020-01-01

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Please use this identifier to cite or link to this item: https://hdl.handle.net/2445/200300

Revisiting real exchange rate volatility: non-traded goods and cointegrated TFP shocks

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https://doi.org/10.1093/oep/gpz029

Abstract

International real business cycle (IRBC) models predict a real exchange rate volatility that is much lower than the levels observed in the data. In this paper, we build a two-country IRBC model with both a traded and a non-traded goods sector, and calibrate it to UK-euro area (EA) data. We provide evidence on the existence of a cointegrating relationship between UK and EA traded sector total factor productivity (TFP) by estimating a vector error correction model (VECM). To account for this relationship, we incorporate non-stationary technology shocks in the traded sectors in our model, and show that then the model is able to match the observed volatility of the UK-EA real exchange rate. Our analysis points out that both the presence of non-traded sectors and non-stationary technology shocks are necessary to account for the observed volatility in the real exchange rate.

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Mercat financer, Transferència de tecnologia, Tecnologia

Subject (English)

Financial market, Technology transfer, Technology

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Articles publicats en revistes (Economia)

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DOGAN, Aydan and BETTENDORF, Timo. Revisiting real exchange rate volatility: non-traded goods and cointegrated TFP shocks. Oxford Economic Papers. 2020. Vol. 72, num. 1, pags. 80-100. ISSN 0030-7653. [consulted: 13 of June of 2026]. Available at: https://hdl.handle.net/2445/200300

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