Date: 2013
Type: Article
Revisiting the importance of non-tradable goods' prices in cyclical real exchange rate fluctuations
European Economic Review, 2013, Vol. 57, pp. 98-107
BACHE, Ida Wolden, SVEEN, Tommy, TORSTENSEN, Kjersti Næss, Revisiting the importance of non-tradable goods' prices in cyclical real exchange rate fluctuations, European Economic Review, 2013, Vol. 57, pp. 98-107
- https://hdl.handle.net/1814/30637
Retrieved from Cadmus, EUI Research Repository
In an influential paper Engel (1999) argues that essentially all the fluctuations in the real exchange rate can be attributed to fluctuations in the relative price of traded goods, and that only a small part of the fluctuations can be attributed to changes in the relative price of non-tradables. We revisit this important issue and our main finding suggests that the relative distribution wedge, i.e. the relationship between traded goods' prices at-the-dock and the retail prices of those goods, is key to understanding real exchange rate fluctuations. Importantly, our results suggest that variations in the relative wedge are driven by fluctuations in mark-ups and not in distribution costs.
Cadmus permanent link: https://hdl.handle.net/1814/30637
Full-text via DOI: 10.1016/j.euroecorev.2012.10.007
ISSN: 1873-572X; 0014-2921
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