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Volatility of the Tradeable and Non-Tradeable Sectors: Theory and evidence

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  • Laura Povoledo

    (Department of Economics, University of Reading)

Abstract

This paper investigates the business cycle fluctuations of the tradeable and nontradeable sectors of the US economy. Then, it evaluates whether a New Open Economy model having prices sticky in the producer's currency can reproduce the observed fluctuations qualitatively. The answer is positive: the model-implied standard deviations are consistent with the pattern in the data. In particular, tradeable output is more volatile than nontradeable output. A key role in generating this result is played by the greater responsiveness of tradeable output to monetary shocks. Parameter estimates are obtained by Generalised Method of Moments.

Suggested Citation

  • Laura Povoledo, 2007. "Volatility of the Tradeable and Non-Tradeable Sectors: Theory and evidence," Economic Analysis Research Group Working Papers earg-wp2007-10, Henley Business School, University of Reading.
    • Handle: RePEc:rdg:eargwp:earg-wp2007-10
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    References listed on IDEAS

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    More about this item

    Keywords

    New Open Economy Macroeconomics; Tradeable and Nontradeable Sectors; Business Cycles;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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