Trends in European real exchange rates

Berka, Martin; Devereux, Michael B.

doi:10.1111/1468-0327.12006

Cited by 30 publications

(27 citation statements)

References 29 publications

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“…Bergin and Glick (2007) stress that a growing trade share of least traded goods, following the European monetary integration after 1998, has been associated with an increase and not decrease of price dispersion. Additionally, Berka and Devereux (2013) also found no evidence for price convergence in the group of euro countries after 1999 and emphasise significant departures from PPP for nontraded as well as for traded goods. Among the main quantitative drivers of relative price dispersion in eurozone markets, Bénassy-Quéré and Coulibaly (2014) identified product market regulations in nontradable sectors and employment protection measures across these countries.…”

Section: Discussionmentioning

confidence: 85%

Is the PPP valid for the EA-11 countries? New evidence from nonlinear unit root tests

Kavkler

Boršič

Bekő

2016

Economic Research-Ekonomska Istraživanja

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In the empirical literature there is a prevalent view that real exchange rates tend to converge towards levels predicted by the Purchasing Power Parity (PPP) only in the long-run and that short-run deviations from the PPP relationship are frequently sizable. The progressing of European monetary integration and the forming of monetary union spurred the interest of researchers to assess the relevance of the PPP theory in the case of the single European currency. Our paper therefore examines this exchange rate theory by testing a dataset of monthly real exchange rates for a sample of 11 eurozone members with respect to different benchmark currencies. Because of the documented drawbacks of linear specifications in examining this exchange rate theory, we utilise a nonlinear unit root test based on the ESTAR model proposed by Kapetanios, Shin, and Snell (2003). The results of unit root tests for the US dollar-based real exchange rate series as well as for Japanese yen-based series suggest that the PPP proposition does not hold in the case of eurozone countries. The absence of real exchange rates' nonlinear reversion reported in this study thus confirms the thesis of Wu and Lin (2011) regarding the PPP relationship since the inception of the euro.

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Section: Discussionmentioning

confidence: 85%

Is the PPP valid for the EA-11 countries? New evidence from nonlinear unit root tests

Kavkler

Boršič

Bekő

2016

Economic Research-Ekonomska Istraživanja

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“…In fact, Berka et al (2012, P. 179) takes issue with the classical Freidman critique that fixed exchange rates are destabilizing and conclude that real exchange rates within the eurozone adhere fairly closely to the efficient outcome. Berka and Devereux (2013) similarly finds that real exchange rates within the eurozone have adjusted substantially towards purchasing power parity via inflation differentials.…”

Section: The Euro and Real Effective Exchange Rate Stabilitymentioning

confidence: 88%

Real Exchange Rate Volatility, Economic Growth and the Euro

Janus

Riera‐Crichton

2015

JEI

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This paper studies the impact of real effective exchange rate volatility on economic growth as well as the euro's impact on real effective exchange rate volatility. We first show that after a plausible endogeneity correction, real effective exchange rate volatility is negatively associated with growth in a 1980~2011 panel of the OECD (Organization for Economic Cooperation and Development) countries. A one standard deviation volatility decrease is associated with a two percentage points growth increase. Second, we find that the euro adoption was associated with a decline of 0.4 standard deviations in long-run real effective exchange rate volatility before the Great Recession in 2008~2009. Moreover, while the Great Recession increased real effective exchange rate volatility by 38~189% of the sample mean for the countries outside the eurozone, the real effective exchange rate of the euro adopters were almost completely insulated. We conclude that real effective exchange rate stability may be growth-enhancing in the OECD countries and that the euro have played a growth-enhancing role at least before the recent eurozone debt crisis.

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“…given that scale eects are often considered implausible (e.g., Jones, 1995a, b), L −δ j , δ ≥ 0, implies that an increase in market scale, measured by L T or L D , dilutes the eect of R&D outlays on the 12 In accordance with this view, Berka andDevereux (2010, 2013) should be recalled. These authors show that for European Union countries, dierentials in prices are generated exclusively by dierences in nontradable goods.…”

Section: Directed Technological Changementioning

confidence: 98%

“…It has long been acknowledged that prices of nal (consumer) goods dier across countries and, since the tradable sector competes internationally, tradable-goods prices tend to be equalized across countries. In the long run, as is usually assumed by the economic growth models, countries have balanced external accounts, tradable goods in dierent countries are perfect substitutes for one another, and cross-country dierentials in prices are exclusively generated by dierences in nontradable goods, as observed by, for example, Berka andDevereux (2010, 2013) in European Union countries. In the aggregate, inter-country relative goods-prices are dened as real exchange rates and understanding their determination remains an important and dicult question in Economics.…”

mentioning

confidence: 99%

Tradable and nontradable directed technical change

Afonso

Sequeira

2020

Applied Economics

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We wish to reconcile the major trends in wages and the terms of trade using a directed technical change approach in which: (i) tradable and nontradable goods can be substitutes or complements; and (ii) scale eects can be present or can be partially or totally removed. With a lower skilled labor ratio and a higher relative wage in the tradable sector, the price (real exchange rate or terms of trade) mechanism is crucial in determining sectoral productivity dierences and thus wage inequality. Along the balanced growth path (BGP), the real exchange rate can be negatively related with the relative advantage to entry through horizontal innovation and with the relative labor level, depending on scale eects. The wage premium increases due to an increase in the relative labor level in the nontradable sector under substitutability with scale eects or under complementarity without scale eects. A calibrated version of the model indicates that the model replicates closely the data on wages for Germany.Moreover, as substitutability increases, the nontradable technological-knowledge bias, which drives wages, rises, while the nontradable relative price and nontradable value of knowledge decrease.

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Trends in European real exchange rates

Cited by 30 publications

References 29 publications

Is the PPP valid for the EA-11 countries? New evidence from nonlinear unit root tests

Is the PPP valid for the EA-11 countries? New evidence from nonlinear unit root tests

Real Exchange Rate Volatility, Economic Growth and the Euro

Tradable and nontradable directed technical change

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