The Volatility of the Tradeable and Nontradeable Sectors: Theory and Evidence

Povoledo, Laura (2009): The Volatility of the Tradeable and Nontradeable Sectors: Theory and Evidence.

Abstract

This paper investigates the business cycle fluctuations of the tradeable and nontradeable sectors of the US economy. Then, it evaluates whether a "New Open Economy" model having prices sticky in the producer's currency can reproduce the observed fluctuations qualitatively. The answer is positive: both in the model and in the data the standard deviations of tradeable inflation, output and employment are significantly higher than the standard deviations of the corresponding nontradeable sector variables. A key role in generating this result is played by the greater responsiveness of tradeable sector variables to monetary shocks.

• Item Type: MPRA Paper
• Institution: University of Reading
• Language: English
• Keywords: New Open Economy Macroeconomics; Tradeable and Nontradeable Sectors; Business Cycles.
• Subjects: F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics; E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E32 - Business Fluctuations ; Cycles

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