Abstract
We empirically assess the importance of two sources of real exchange rate movements. In models where PPP holds only among traded goods, real exchange rate variation results from relative price movements within countries. An alternative explanation relies on hysteretic price-setting and nominal exchange rate changes. Using disaggregated price data from 11 OECD nations, we find some support for the non-traded goods models. For example, prices of haircuts in Canada and the United States are unrelated in the long run. We find stronger evidence to support models that emphasize sticky prices, transportation costs, or other impediments to frictionless trade.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
