Terms of Trade, Productivity, and the Real Exchange Rate

20 Pages Posted: 22 Aug 1998 Last revised: 25 Aug 2010

See all articles by Jose de Gregorio

Jose de Gregorio

Central Bank of Chile; Universidad de Chile; National Bureau of Economic Research (NBER)

Holger C. Wolf

Georgetown University - Edmund A. Walsh School of Foreign Service (SFS)

Date Written: July 1994

Abstract

The paper examines the effects of terms of trade movements and productivity differentials across sectors on the behavior of the real exchange rate. We develop a simple model of a small open economy producing exportable and nontradable goods and consuming importable and nontradable goods and present empirical evidence for a sample of fourteen OECD countries. The evidence broadly supports the predictions of the model, namely that faster productivity growth in the tradable relative to the nontradable sector and an improvement in the terms of trade induce a real appreciation.

Suggested Citation

de Gregorio, Jose and Wolf, Holger C., Terms of Trade, Productivity, and the Real Exchange Rate (July 1994). NBER Working Paper No. w4807. Available at SSRN: https://ssrn.com/abstract=6891

Jose De Gregorio (Contact Author)

Central Bank of Chile ( email )

Agustinas 1180
Santiago
Chile

Universidad de Chile ( email )

Ministry of Finance Teatinos l20 - Piso l2
Santiago
Chile

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Holger C. Wolf

Georgetown University - Edmund A. Walsh School of Foreign Service (SFS) ( email )

Washington, DC 20057
United States
202-687-8079 (Phone)
202-687-8359 (Fax)

HOME PAGE: http://georgetown.edu/faculty/wolfhc/

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