Eprint already available on another site (E-prints, Working papers and Research blog)
The consumption-real exchange rate anomaly with extensive margins
Hamano, Masashige
2013
 

Files


Full Text
2013-01 - The consumption-real exchange rate anomaly with extensive margins.pdf
Author postprint (483.89 kB)
Download

All documents in ORBilu are protected by a user license.

Send to



Details



Keywords :
terms of trade; the Backus-Smith puzzle; firm entry
Abstract :
[en] This paper investigates a consumption-real exchange rate anomaly from the open macroeconomics literature known as the Backus-Smith puzzle . We both analytically and quantitatively examine how an expansion of trade along extensive margins can contribute to the puzzle s resolution. Our argument is based on 1) a wealth effect due to changes in the number of product varieties, 2) statistical inefficiency in measuring the number of product varieties, and 3) market incompleteness. Contrary to complete asset markets which, in general, feature overly strong risk sharing properties, changes in the number of product varieties under incomplete markets may produce a wealth e¤ect under high trade elasticity. Since statistical agencies systematically fail to capture the welfare impact arising from that changes, data-consistent terms of trade and real exchange rates tend to appreciate due to this positive wealth effect. This provides a realistic correlation between data-consistent real exchange rates and consumption.
Disciplines :
Macroeconomics & monetary economics
Author, co-author :
Hamano, Masashige ;  University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA)
Language :
English
Title :
The consumption-real exchange rate anomaly with extensive margins
Publication date :
2013
Available on ORBilu :
since 28 January 2014

Statistics


Number of views
48 (2 by Unilu)
Number of downloads
211 (0 by Unilu)

Bibliography


Similar publications



Contact ORBilu