Price Of Non-traded Goods Research Articles

Fluctuations of the Real Exchange Rate and the Structure of the Iraqi Economy

This paper analyzes how a boom in the oil sector affects the relative prices of non-tradable goods compared to tradable goods, the real exchange rate, and the competitiveness of Iraq’s broader economy. As the oil sector booms, Iraq’s currency appreciates, which reduces the competitiveness of the country’s traditional export sectors. This thesis investigates the presence of Dutch Disease in Iraq, an area previously unexplored. It evaluates the impact of growing oil revenues on the non-oil sectors of the economy and provides empirical evidence showing a contraction in the tradable goods sector and an appreciation of the real exchange rate. The findings suggest that Iraq experienced symptoms of Dutch Disease, including real exchange rate appreciation, a shrinking tradable goods sector, and an expanding non-tradable goods sector. Ultimately, the appreciation of the real exchange rate is responsible for shifting Iraq‘s economy from manufacturing and agriculture (tradable sectors) to construction and services (non-tradable sectors).

The Brexit Vote, Productivity Growth, and Macroeconomic Adjustments in the U.K.

Abstract The U.K. economy experienced significant macroeconomic adjustments following the 2016 referendum on its withdrawal from the European Union. To understand these adjustments, this paper presents empirical facts using novel U.K. macroeconomic data and estimates a small open economy model with tradable and non-tradable sectors. We demonstrate that the referendum outcome can be interpreted as news about a future decline in productivity growth in the tradable sector. An immediate fall in the relative price of non-tradable goods induces a temporary “sweet spot” for tradable producers. Economic activity in the tradable sector expands in the short run, while the non-tradable sector contracts. Aggregate output, consumption, and investment growth decelerate.

Traversing the Macroeconomic Terrain: An Exploration of South Korea’s Economic Responsiveness to Cross-Border E-Commerce Production Technology Alterations in the Global Arena

The principal aim of this study is to discern the implications of technology shocks in the sphere of cross-border e-commerce on the macroeconomic indices of South Korea. Leveraging Bayesian estimation techniques, we scrutinized quarterly data from the inaugural quarter of 2000 through to the first quarter of 2022 to perform an empirical exploration. Deductions drawn from the impulse response function indicate that a positive perturbation in the technology of sustainable cross-border e-commerce production instigated a swell in output and investment for both non-tradable and cross-border e-commerce goods producers. Conversely, the sector of traditional tradable goods exhibited a decrease in output and investment. Additionally, this favorable technology shock appears to have amplified household consumption and employment, along with wages in the non-tradable and sustainable cross-border e-commerce goods sectors. In stark contrast, the traditional tradable sector demonstrated a decline in household consumption, employment, and wages. Intriguingly, the technology shock also exerted an influence on the pricing system, causing a rise in the prices of non-tradable goods and cross-border e-commerce goods. On the other hand, the prices of traditional tradable goods experienced a downward turn. These insights provide a pathway to an understanding of how advancements in sustainable e-commerce technology can mold an array of macroeconomic factors in a digitally evolved economy such as South Korea.

Understanding Pandemic Crisis in a Dependent Economy: A Structuralist Analysis

The pandemic crisis and associated lockdown have led to diminution in demand on one hand and different types of supply side bottlenecks on the other. The article makes a theoretical attempt to assess macroeconomic dimensions of COVID-19 along with consequences of such crisis using a two-sector dependent economy model. In particular, the article investigates the implications of unanticipated adverse shock such as COVID-19 and wage cut for the dynamic interaction of Tobin’s q, price of non-traded goods and the exchange rate and sectoral composition of output and level of employment. The effects of expansionary fiscal policy and increase in risk premium are also highlighted as the part of concluding remarks. The results in this article critically depend on the difference in the speeds of adjustments in the Tobin’s q, exchange rate and price of non-traded goods and different types of cross effects emanating from changes in interconnected macroeconomic variables. While the pandemic crisis leads to contraction of all the sectors and decrease in level of employment in the short-run with uncertain medium-run implications, the wage cut somewhat arrests the fall in employment. JEL Codes: E24, F41, G12

Trade, Structural Transformation, and Development: Evidence from Argentina 1869–1914

We provide new theory and evidence on the role of external and internal integration in structural transformation and economic development, using Argentina’s integration into the world economy in the late nineteenth century. Our theoretical model provides microfoundations for a spatial Balassa-Samuelson effect, in which locations closer to world markets have higher population densities, urban population shares, relative prices of nontraded goods, and land prices relative to wages, as well as specializing in traded goods that are transport-cost sensitive. We estimate the model’s parameters, provide evidence in support of this spatial Balassa-Samuelson mechanism, and find substantial effects of both external and internal integration on economic development.

Price level convergence in Turkey

ABSTRACT This paper examines price convergence among 26 regions of Turkey using general and disaggregated monthly consumer prices between 2005 and 2019. In contrast to previous studies, the results provide evidence for convergence clubs (multiple equilibria) and support the heterogeneity of consumer prices across Turkish regions. This finding is particularly valid for the disaggregated prices where there exist two to four clubs. There is also an increase in the number of convergence clubs in recent years. That is, market integration or the law of one price in Turkey does not appear to be achieved not only for the prices of nontradable goods but also for those of tradable goods either, most likely due to a combination of factors including higher exchange rate volatility, rising inflation and unrelenting regional socio-economic disparities. Our results show that the inflation-targeting regime does not help converge the consumer price levels across the regions.

Excess Labor Supply, Structural Change and Real Exchange Rate

Since China joined the World Trade Organisation in 2001, the Chinese economy has grown rapidly, especially the tradable goods sector. However, the Chinese real exchange rate did not exhibit a persistent and stable appreciation until 2005. This is a puzzling fact that is inconsistent with theories. This paper documents several stylized facts during the economic transition and argues that two features of the Chinese economy may help explain the puzzling real exchange rate pattern for the Chinese economy: i) the faster total factor productivity (TFP) growth in the export sector compared with the import sector; and ii) excess supply of unskilled labor. We construct a small open economy model with an H-O trade structure. We show that, due to heterogeneous skilled labor intensity in export and import sectors, faster TFP growth in the export sector over that in the import sector will lead to the decline of return to capital and a rise of the skilled wage. Therefore, the decrease of return to capital and the persistent low unskilled wage, which is caused by the excess supply of unskilled labor, inhibit the rise in the relative price of non-tradable goods to tradable goods and the appreciation of the real exchange rate. Furthermore, we develop a dynamic small open economy model with multiple tradable goods sectors. We show that the model does fairly well in explaining the Chinese real exchange rate and other stylized facts in the economic transition. Finally, we demonstrate that our hypotheses are supported by cross-country evidence.

Příčiny odchylek nominálních kurzů od absolutní parity kupní síly v tranzitivních ekonomikách

This paper deals with the absolute version of purchasing power parity and its applicability in transition economies. The aim of the paper is to identify and quantify deviations between nominal exchange rates and rates based on purchasing power parity. The paper specifies and analyses the theoretical causes of those deviations and focuses on the impact of prices of non-tradable goods on purchasing power parity. Parity exchange rates based on prices of tradable-only goods are then calculated for 20 transition economies. Panel regression instruments are used to analyse the influence of selected macroeconomic and institutional variables on deviations between nominal exchange rates and rates based on purchasing power parity.

Structural changes and the real exchange rate dynamics

Since China joined the WTO in 2001, the Chinese economy has grown very rapidly, especially, the tradable goods sector. However, the Chinese real exchange rate did not exhibit a persistent and stable appreciation until 2005. This is a puzzling fact that is inconsistent with theories. This paper documents several stylized facts during the economic transition and argues that two features of Chinese economy may help explain the puzzling real exchange rate pattern for Chinese economy: (i) the faster total factor productivity (TFP) growth in export sector compared with the import sector; (ii) excess supply of unskilled labor. Our hypotheses are supported by cross-country evidence. Furthermore, we construct a small open economy model with an H-O trade structure and show that, due to heterogeneous skilled labor intensity in export and import sectors, the faster TFP growth in the export sector over that in the import sector will lead to the decline of return to capital and the rise of skilled wage. Therefore, the decrease of return to capital and the low unskilled wage, which is caused by the excess supply of unskilled labor, inhibit the rise in the relative price of non-tradable goods to tradable goods as well as the appreciation of real exchange rate. Finally, we show that a dynamic small open economy model with multiple tradable goods sectors does fairly well in explaining the Chinese real exchange rate and other stylized facts in the economic transition.

How Does Credit Supply Expansion Affect the Real Economy? The Productive Capacity and Household Demand Channels

ABSTRACTCredit supply expansion can affect an economy by increasing productive capacity or by boosting household demand. In this study, we develop a test to determine if the household demand channel is present, and we implement the test using both a natural experiment in the United States in the 1980s and an international panel of 56 countries over the last several decades. Consistent with the importance of the household demand channel, we find that credit supply expansion boosts nontradable sector employment and the price of nontradable goods, with limited effects on tradable sector employment. Such credit expansions amplify the business cycle and lead to more severe recessions.

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Can Financial Development Mitigate the Impact of Remittances on Real Exchange Rate Appreciation?

Remittances have been blamed for causing real exchange rate appreciation by raising the relative prices of nontraded goods and services in the recipient countries. However, empirical studies seeking to support this claim are lacking in Asia, despite the huge amount of remittances received by the region. In view of that, this paper used a panel dataset from eighteen remittance-recipient Asian countries during the period of 1981 – 2010 and Pooled Mean Group (PMG) estimator to examine the effect of remittances and financial sector development on real exchange rate. The paper, specifically, questions if the real exchange rate appreciation caused by the inflow of remittances varies with the degree of financial sector development in these countries. The paper finds that inflow of remittances has significant long-run impact on the appreciation of the real exchange rates in the remittance-recipient Asian countries. However, such effect of appreciation declines in countries with enhanced financial sector development.

Public debt and relative prices in a cross-section of countries

This paper examines the effects of debt and distortionary labor taxation on the long-run behavior of the relative price of nontraded goods. At the theoretical level, in a two-sector open economy model we demonstrate that higher public debt, associated with higher taxation, contracts labor supply in both traded and nontraded goods sectors. Relative prices move inversely with relative supply shifts which, in turn, depend on relative factor intensities. At the empirical level, for a panel of advanced economies, we find statistically significant effects of public debt and taxes on the relative price of nontraded goods, with higher debt and taxes associated with higher relative prices.

Effects of Variations in Government Fiscal Expenditure on Real Exchange Rate in Korea: ARDL-EC Model Estimation

The aim of this study is to investigate effects of changes in government expenditure on real exchange rate for Korea during the period of 1998. I - 2016. IV. We use Error Correction model based on Pesaran, Shin and Smith (2001)’s ARDL bounds test to estimate long run and short run relationship between changes in government expenditure and real exchange rate. The results show that changes in government expenditure during the period had a significant positive effect on real exchange rate in Korea. The long run response of real exchange rate was more than twice larger than the short run response. To be more specific, one percent increase of the ratio of government expenditure to GDP raised the real exchange rate by 0.99% in the short run while the same change raised the real exchange rate by more than 2.55% over the long run. The positive empirical effect of government expenditure increase on the real exchange rate found by the present study is broadly in line with many other previous studies. Theoretically, this result is in line with the assertion that an expansionary government expenditure would raise relative price of non-tradable goods when the government expenditure has a home bias and so a positive effect on the real exchange rate.

How Do Credit Supply Shocks Affect the Real Economy? Evidence from the United States in the 1980s

Credit supply expansion can affect an economy by increasing productive capacity or by boosting household demand. This study develops an empirical test to determine whether the household demand channel of credit supply expansion is present, and it implements the test using both a natural experiment in the United States in the 1980s based on banking deregulation and an international panel of 56 countries over the last several decades. Consistent with the importance of the household demand channel, credit supply expansion boosts non-tradable sector employment and the price of non-tradable goods, with limited effects on tradable sector employment. Such credit expansions amplify the business cycle, leading to more severe recessions.

Exchange Rate Policy and the Role of Non-Traded Goods Prices in Real Exchange Rate Fluctuations

This paper uses a DSGE model of two small open economies to explain certain features of real exchange rate cyclical fluctuations in countries with fixed and flexible exchange rates, focusing on the role of traded and non-traded goods prices. In particular, the model illustrates why the relative price of nontraded goods and the relative price between domestic and foreign traded goods are more volatile than the real exchange rate under a fixed exchange rate but not under a flexible exchange rate, why deviations from purchasing power parity for traded goods prices can be more volatile under a fixed exchange rate than under a flexible exchange rate, and why there is no correlation between the volatility of the real exchange rate and its variance decomposition.

Exchange rate policy and the role of non-traded goods prices in real exchange rate fluctuations

AbstractThis paper uses a DSGE model of two small open economies to explain certain features of real exchange rate cyclical fluctuations in countries with fixed and flexible exchange rates, focusing on the role of traded and non-traded goods prices. In particular, the model illustrates why the relative price of non-traded goods and the relative price between domestic and foreign traded goods are more volatile than the real exchange rate under a fixed exchange rate but not under a flexible exchange rate, why deviations from purchasing power parity for traded goods prices can be more volatile under a fixed exchange rate than under a flexible exchange rate, and why there is no correlation between the volatility of the real exchange rate and its variance decomposition.

Exchange Rate Determinants Using a Reduced Form of Purchasing Power Parity Model with Relative Prices of Non-tradable and FM-OLS Cointegration Methodology

The aim of this paper is to investigate the determinants of nominal and real exchange rates by introducing a model utilizing the reduced form of purchasing power parity (RF-PPP) suggested by Deloach. The key feature of the model is that relative prices of non-tradable goods are taken as an empirical proxy variable in formulating a testable hypothesis which is extended with lagged variables. Fully modified-OLS (FM-OLS) cointegration methodology with IFS database is employed for empirical analysis. Empirical evidence reveals that relative prices of non-tradable goods are consistent with predictions for long-run relationships between level of prices and exchange rates. Accordingly, these predictions are highly explainable when the real exchange rate and lagged variables are involved in the analysis. Findings suggest that level of prices still plays an important role in causing a long-run equilibrium in the foreign exchange markets. It also has to be mentioned that the impact of economic shocks is asymmetrically transmitted to tradable and non-tradable goods. Therefore, trade policy should be implemented elaborately to take care of the level of prices which is originated from non-tradable goods. Such policy would help to avoid imbalance between tradable and non-tradable goods.

A European Disease? Non-tradable Inflation and Real Interest Rate Divergence

This paper studies the contribution of real interest rate divergence to the dynamics of the relative price of non-tradables within Europe. Based on a model by De Gregorio et al. (1994), it shows that the real interest rate fall in the Euro Area (EA) periphery following the single currency's inception induced an increase in the relative price of non-tradable goods. using a new dataset, it documents the dynamics of the tradable and the non-tradable sectors over 1995-2013 and the expansion of the non-tradable sector in the periphery before the euro crisis. it then carries out an econometric estimation for 11 EA countries over 1995-2013 and quantifies the contribution of the pure Balassa-Samuelson effect and the impact of the interest rate on non-tradable relative prices. Diverging evolution in the interest rate impacted greatly the evolution of non-tradable relative prices within the euro area over the period. In Greece, the fall in the real interest rate over 1995-2008 could explain almost half of the non-tradable price increase relative to the EA average, while in Germany the increase in the real interest rate might have contributed up to 7% of the decrease of the non-tradable price relative to the average of the EA.

Real Exchange Rate Movements and the Relative Price of Non-Traded Goods

Real Exchange Rate Movements and the Relative Price of Non-Traded Goods