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The consumption-real exchange rate anomaly: nontraded goods and distribution services

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  • Vicente Tuesta

Abstract

In the data, Real Exchange Rates (RERs) tend to move in opposite directions with respect to the relative consumption across countries. Chari et al . (2002) refer to the inability of models to replicate the previous stylized fact as the consumption-RER anomaly. In this article, it is shown that an International Real Business Cycle (IRBC) model, similar to the one proposed by Chari et al . but extended by considering nontraded goods and an incomplete asset market structure, can solve the anomaly. Nontradable goods amplify wealth effects arising from the incomplete assets market structure, generating a negative co-movement between the RER and relative consumption. Adding Distribution Services (DS) improves the performance of the model in some other dimensions. In particular, DS help to generate countercyclical net exports.

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  • Vicente Tuesta, 2013. "The consumption-real exchange rate anomaly: nontraded goods and distribution services," Applied Economics, Taylor & Francis Journals, vol. 45(2), pages 255-271, January.
    • Handle: RePEc:taf:applec:45:y:2013:i:2:p:255-271
    DOI: 10.1080/00036846.2011.597730
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    Cited by:

    1. Aydan Dogan, 2014. "Euro- US Real Exchange Rate Dynamics: How Far Can We Push Equilibrium Models?," Studies in Economics 1409, School of Economics, University of Kent.

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