A1 - Martin Berka
A1 - Daan Steenkamp
TI - Deviations in real exchange rate levels in the OECD countries and their structural determinants
IS - 2018-16
T3 - Working Papers
KW - Balassa-Samuelson
KW - Real Exchange Rates
KW - Total Factor Productivity
KW - Labour Wedge
N2 - We study the validity of an augmented Balassa-Samuelson theory in a panel of real exchange rate levels across 17 OECD countries between 1970 and 2012 using a unique panel of levels of total factor productivity (TFP) across sectors. We find that real exchange rates can be explained by relative sectoral TFP levels both across countries and over time in the direction predicted by Balassa-Samuelson hypothesis. We also show that drivers of labour wedges such as structural labour market differences are important in explaining real exchange rate levels. Nevertheless, large average conditional deviations in real exchange rate levels remain across countries in our sample.
ER -