The determination of the real exchange rate. The productivity approach

This paper explains deviations of exchange rates from purchasing power parity with the differences between countries of the relative growth rates of labor productivity between traded and nontraded sectors. Two cases are considered: Germany and Japan versus their respective major trading partners. The results show that the time series methodology yields a more favorable confirmation of the productivity differential model than the cross section regressions in the literature. © 1982.

Duke Scholars

Author David A. Hsieh Fuqua School of Business