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Real exchange rate dynamics in New-Keynesian models – The Balassa-Samuelson effect revisited

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  • Brede, Maren

Abstract

This paper explores the Balassa-Samuelson effect in a New-Keynesian DSGE model of a monetary union with traded and non-traded goods. Credible sets for theoretical impulse response functions show that a model with perfect intersectoral labour mobility is unable to reproduce an appreciation of the real exchange rate caused by higher productivity in the traded sector. Allowing for imperfect intersectoral labour mobility resolves this obstacle and delivers testable restrictions for model parameters governing the labour market specification in a Bayesian estimation context.

Suggested Citation

  • Brede, Maren, 2018. "Real exchange rate dynamics in New-Keynesian models – The Balassa-Samuelson effect revisited," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181539, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc18:181539
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    References listed on IDEAS

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    7. Bordo, Michael D. & Choudhri, Ehsan U. & Fazio, Giorgio & MacDonald, Ronald, 2017. "The real exchange rate in the long run: Balassa-Samuelson effects reconsidered," Journal of International Money and Finance, Elsevier, vol. 75(C), pages 69-92.
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    More about this item

    Keywords

    Real exchange rate; Balassa-Samuelson; prior predictive analysis;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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