“Exchange Rates and Endogenous Productivity”
Coautoreado con Nils Gornemann y Pablo Guerron-Quintana
Abstract: Real exchange rates (RER) display sizable fluctuations not only over the business cycle, but to an even larger degree at lower frequencies, resulting in large and persistent swings over decades—facts that many international business cycle models struggle to match. We propose a two-country macroeconomic model with endogenous productivity to rationalize these facts. In the model, endogenous growth amplifies stationary fluctuations generating persistent productivity differences between countries that trigger low-frequency cycles in the RER. The estimated model effortlessly replicates the empirical spectrum, autocorrelation, and half-life of the RER while simultaneously matching other macroeconomic moments. In addition, we document that low frequency movements in aggregate trade flows are highly informative to discipline the RER dynamics. Finally, we validate the model-implied co-movement between relative prices and technology differentials using a panel of cross industry-country data on patent and industry prices.
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