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Productivity Shocks and Real Effective Exchange Rates
Author(s) -
Beckmann Joscha,
Belke Ansgar,
Czudaj Robert
Publication year - 2015
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/rode.12165
Subject(s) - economics , productivity , exchange rate , effective exchange rate , short run , wage , econometrics , autoregressive model , monetary economics , macroeconomics , labour economics
This paper provides new insights into the relationship between exchange rates and productivity developments for E uropean Economies. We focus on the question whether productivity changes have a long‐run impact on real effective exchange rates for a large number of E uropean economies. Focusing on a sample period running from 1995 until 2013, we adopt a cointegrated vector autoregressive approach and distinguish between long‐run equilibrium, short‐run dynamics and long‐run impact of shocks. Our findings show that for several industrialized economies, real effective exchange rates and labor productivity are not related over the long‐run. A possible explanation for this result is that wage developments do not reflect increases in labor productivity to a large degree, which prevents a transmission to the real effective exchange rate through the price channel. The results for C entral and Eastern E uropean C ountries are more encouraging since a positive impact of labor productivity on real effective exchange rate is frequently observed.