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Title: International risk-sharing and the transmission of productivity shocks
Abstract
A central puzzle in international finance is that real exchange rates are volatile and, in stark contradiction to effcient risk-sharing, negatively correlated with cross-country consumption ratios. This paper shows that incomplete asset markets and a low price elasticity of tradables can account quantitatively for these properties of real exchange rates. The low price elasticity stems from distribution services, intensive in local inputs, which drive a wedge between producer and consumer prices and lower the impact of terms-of-trade changes on optimal agents' decisions. Two very different patterns of the international transmission of productivity improvements generate the observed degree of risk-sharing: one associated with a strengthening, the other with a deterioration of the terms of trade and real exchange rate. Evidence on the effect of technology shocks to U.S. manufacturing, identified through long-run restrictions, is found in support of the first transmission pattern, questioning the presumption that terms-of-trade movements foster international risk-pooling. [Giancarlo Corsetti, Luca Dedola and Sylvain Leduc]
Author: Corsetti, Giancarlo | Dedola, Luca | Leduc, Sylvain
Series Title: Working paper series / European Central Bank ; 308
Publisher: European Central Bank
Year: 2004
Language: en
Ressource: Einzelne Arbeitspapiere, Preprints
Keyword: International financial marketLaw of one pricePurchasing power parityOECD countriesProductivityShockTerms of tradeUnited States
Subject: Economic and growth policiesInvestment returns. Financial market. Interest ratesInternational investments. Capital movements
Online Ressource: vorübergehend nicht erreichbar!
Bitte beachten Sie die urheberrechtlichen Bedingungen der Dokumentenbenutzung / Please observe the copyright when accessing the document | Quelle / Source: Europäische Zentralbank (http://www.ecb.int)
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