Abstract
In this paper, we study the eects of news about future productivity changes (news shocks) and contemporaneous productivity changes (contemporaneous shocks) on the real exchange rate and terms of trade. Following Barsky and Sims’ (2010) identication method, we decompose US total factor productivity (TFP) into news and contemporaneous productivity changes. We nd that the identied news TFP shocks play a much more important role than the identied contemporaneous TFP shocks in driving the US real exchange rate and terms of trade. We also
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