Search Results
Working Paper
Real exchange rates and sectoral productivity in the Eurozone
We investigate the link between real exchange rates and sectoral total factor productivity measures for countries in the Eurozone. Real exchange rate patterns closely accord with an amended Balassa-Samuelson interpretation, both in cross-section and time series. We construct a sticky price dynamic general equilibrium model to generate a cross-section and time series of real exchange rates that can be directly compared to the data. Under the assumption of a common currency, estimates from simulated regressions are very similar to the empirical estimates for the Eurozone. Our findings contrast ...
Working Paper
Relative price volatility: what role does the border play?
We reexamine the effect of the U.S.-Canadian border on integration of markets. The paper updates work from our earlier paper, Engel and Rogers (1996). We consider alternative measures of deviations from the law of one price. We pay special attention to the effect of the U.S.-Canada free trade agreement on market integration. Our conclusions are unchanged: markets in the U.S. and Canada are more segmented than can be explained by the physical distance between the two locations. Formal trade barriers do not appear to explain much of that segmentation.
Working Paper
The distribution of exchange rates in the EMS
Working Paper
Revisiting the Border: an assessment of the law of one price using very disaggregated consumer price data
We reexamine the evidence for border effects in deviations from the law of one price, using data for consumer prices from Canadian and U.S. cities. The study parallels Engel and Rogers (1996), except that this study uses actual price data rather than price index data. We find evidence of border effects both in the levels of prices and the percentage change in prices. Even accounting for distance between cities and relative population sizes, we find that the absolute difference between prices in the U.S. and Canada in our data (annual from 1990 to 2002) is greater than seven percent. This ...
Conference Paper
Exchange rates and fundamentals
Standard economic models hold that exchange rates are influenced by fundamental variables such as relative money supplies, outputs, inflation rates and interest rates. Nonetheless, it has been well documented that such variables little help predict changes in floating exchange rates ? that is, exchange rates follow a random walk. We show that the data do exhibit a related link suggested by standard models - that the exchange rate helps predict fundamentals. We also show analytically that in a rational expectations present value model, an asset price manifests near random walk behavior if ...
Working Paper
The U.S. current account deficit and the expected share of world output
We investigate the possibility that the large current account deficits of the U.S. are the outcome of optimizing behavior. We develop a simple long-run world equilibrium model in which the current account is determined by the expected discounted present value of its future share of world GDP relative to its current share of world GDP. The model suggests that under some reasonable assumptions about future U.S. GDP growth relative to the rest of the advanced countries -- more modest than the growth over the past 20 years -- the current account deficit is near optimal levels. We then explore the ...
Journal Article
On the record: making sense of today's globalized economy
A discussion with University of Wisconsin economics professor Charles Engel, a senior fellow of the Dallas Fed's Globalization and Monetary Policy Institute, ranges from the current financial crisis to the unpredictability of exchange rates.
Working Paper
The U.S. current account deficit and the expected share of world output
We investigate the possibility that the large current account deficits of the U.S. are the outcome of optimizing behavior. We develop a simple long-run world equilibrium model in which the current account is determined by the expected discounted present value of its future share of world GDP relative to its current share of world GDP. The model suggests that under some reasonable assumptions about future U.S. GDP growth relative to the rest of the advanced countries--more modest than the growth over the past 20 years--the current account deficit is near optimal levels. We then explore the ...
Discussion Paper
Exchange rate policies
Modern macroeconomic theory teaches us new lessons about exchange rates: Currency depreciations or appreciations that change the relative competitiveness of producers in different countries are undesirable from a global perspective if they lead to relative prices that do not reflect the true relative costs of production. From this standpoint, "external balance" does not mean that trade balances should be zero, but rather that global resources are allocated efficiently. The implications of this insight for the role of the exchange rate in monetary policy are explored here. Some of the ...