The association between the pattern of growth in relative price levels and the assumed cause, slower productivity growth in services, has led to a parallel indirect definition of the real exchange rate--namely, the ratio of prices of nontradables
Unlike under the pure energy sector shock, production in the Euro Area switches away from tradables and towards nontradables
The production processes for both the tradables and nontradables
in any economy are assumed to use labor only, and the production technology in each sector is linear in labor inputs.
Mendoza Real Exchange Rate Volatility and the Price of Nontradables
in Sudden-Stop-Prone Economies 11692 Dale T.
Real exchange rate fluctuations and the relative importance of Nontradables
Among the rich countries, only American billionaires are getting richer on average over time, potentially reflecting extreme rents in resources, finance and nontradables
," the authors wrote.
Instead, the large expansion in nontradables
and consequent appreciation of the real exchange rate that came with the large capital inflows from the rest of Europe took place in the wholesale and retail sectors and in community services (education, health care, and social work).
According to Lartey (2008), an increase in capital inflows eventually causes an increase in demand for nontradables
, a rise in the relative price of nontradables
, and an expansion of nontradable
Wolf, "International Evidence on Tradables and Nontradables
Inflation" NBER Working Paper No.
In an environment of ever increasing IT-enabled global connectivity, many services have been transformed from nontradables
In this context, measures to increase potential growth are becoming more important-from rethinking the shape of labor market institutions, to increasing competition and productivity in a number of nontradables
sectors, to rethinking the size of the government, to examining the role of public investment.
Our point of departure is the Domar (1944) model, with the modification of introducing two sectors of production, a sector of tradables and one of nontradables
, along the lines of the SMI, as described in a study by Lindbeck (1979).