Post by Sapphire Capital on Jul 14, 2008 20:15:36 GMT 4
Real Exchange Rate Volatility and Disconnect: An Empirical Investigation
RICCARDO CRISTADORO
Bank of Italy
ANDREA GERALI
Bank of Italy
STEFANO NERI
Bank of Italy
MASSIMILIANO PISANI
Bank of Italy
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April 30, 2008
Bank of Italy Temi di Discussione (Working Paper) No. 660
Abstract:
A two-country model that incorporates many features proposed in the New Open Economy Macroeconomics literature is developed in order to replicate the volatility of the real exchange rate and its disconnect with macroeconomic variables. The model is estimated using data for the euro area and the U.S. and Bayesian methods. The analysis delivers the following results: (a) international price discrimination, home bias and shocks to the uncovered interest rate parity (UIRP) condition are key features to replicate the variance of the real exchange rate; (b) home bias, shocks to the UIRP condition and to production technologies help replicating the disconnect;(c) distribution services intensive in local nontradeables are an important source of international price discrimination.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1148688_code606534.pdf?abstractid=1148688&mirid=2
RICCARDO CRISTADORO
Bank of Italy
ANDREA GERALI
Bank of Italy
STEFANO NERI
Bank of Italy
MASSIMILIANO PISANI
Bank of Italy
--------------------------------------------------------------------------------
April 30, 2008
Bank of Italy Temi di Discussione (Working Paper) No. 660
Abstract:
A two-country model that incorporates many features proposed in the New Open Economy Macroeconomics literature is developed in order to replicate the volatility of the real exchange rate and its disconnect with macroeconomic variables. The model is estimated using data for the euro area and the U.S. and Bayesian methods. The analysis delivers the following results: (a) international price discrimination, home bias and shocks to the uncovered interest rate parity (UIRP) condition are key features to replicate the variance of the real exchange rate; (b) home bias, shocks to the UIRP condition and to production technologies help replicating the disconnect;(c) distribution services intensive in local nontradeables are an important source of international price discrimination.
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1148688_code606534.pdf?abstractid=1148688&mirid=2