Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/67733
Authors: 
Backus, David K.
Smith, Gregor W.
Year of Publication: 
1993
Series/Report no.: 
Queen's Economics Department Working Paper 1252
Abstract: 
We examine the possibility that nontraded goods may account for several striking features of international macroeconomic data: large, persistent deviations from purchasing power parity, small correlations of aggregate consumption fluctuations across countries, and substantial international real interest rate differentials. A dynamic, exchange economy is used to show that nontraded goods in principle can account for each of these phenomena. In the theory there is a close relation between fluctuations in consumption ratios and those in bilateral real exchange rates, but we find little evidence for this relation in time series data for eight OECD countries.
Subjects: 
consumption correlations
purchasing power parity
real exchange rates
JEL: 
F41
Document Type: 
Working Paper

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