Please use this identifier to cite or link to this item: http://hdl.handle.net/10397/15595
Title: Real exchange rate, productivity and labor market frictions
Authors: Sheng, Y
Xu, X 
Keywords: Labor market efficiency
Search unemployment
The Balassa-Samuelson model
Issue Date: 2011
Publisher: Pergamon Press
Source: Journal of international money and finance, 2011, v. 30, no. 3, p. 587-603 How to cite?
Journal: Journal of international money and finance 
Abstract: We extend the classic Balassa-Samuelson model to an environment with search unemployment. We show that the classic Balassa-Samuelson model with the assumption of full employment emerges as a special case of our more generalized model. In our generalized model, the degree of labor market matching efficiency affects the strength of the structural relationship between the real exchange rate and sectoral productivity through influencing labor's choice between employment and unemployment as well as movement across sectors. When the relative labor market matching friction is high, search unemployment is high and the standard Balassa-Samuelson effect may not hold. Empirical evidence supports our theory: controlling for differences in labor market frictions across countries provides a better fit in estimating the Balassa-Samuelson effect.
URI: http://hdl.handle.net/10397/15595
ISSN: 0261-5606
EISSN: 1873-0639
DOI: 10.1016/j.jimonfin.2011.01.006
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