Martin Berka & Daan Steenkamp , 2018.
"Deviations in real exchange rate levels in the OECD countries and their structural determinants,"
CEPII Working Paper 2018- 16 , September 2018 , CEPII.
We study the validity of an augmented Balassa-Samuelson theory in a panel of real exchange rate levels across 17 OECD countries between 1970 and 2012 using a unique panel of levels of total factor productivity (TFP) across sectors. We find that real exchange rates can be explained by relative sectoral TFP levels both across countries and over time in the direction predicted by Balassa-Samuelson hypothesis. We also show that drivers of labour wedges such as structural labour market differences are important in explaining real exchange rate levels. Nevertheless, large average conditional deviations in real exchange rate levels remain across countries in our sample.
Balassa-Samuelson ; Real Exchange Rates ; OECD ; Total Factor Productivity ; Labour Wedge