TY  - JOUR
AU  - Canzoneri,Matthew B.
AU  - Cumby,Robert E.
AU  - Diba,Behzad
TI  - Relative Labor Productivity and the Real Exchange Rate in the Long Run: Evidence for a Panel of OECD Countries
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 5676
PY  - 1996
Y2  - July 1996
UR  - http://www.nber.org/papers/w5676
L1  - http://www.nber.org/papers/w5676.pdf
N1  - Author contact info:
Matthew Canzoneri
Department of Economics
Georgetown University
Washington, DC   20057
Tel: 202-687-5911
E-Mail: canzonem@georgetown.edu

Robert E. Cumby
Georgetown University
School of Foreign Service
Washington, DC 20057-1045
Tel: 202/687-2990
Fax: 202/687-6102
E-Mail: cumbyr@georgetown.edu

Behzad Diba
Department of Economics
Georgetown University
Washington, DC  20057
Tel: 202-687-5682
Fax: 202-687-6102
E-Mail: dibab@georgetown.edu
AB  - The Balassa-Samuelson model, which explains real exchange rate movements in terms of sectoral productivities, rests on two components.  First, for a class of technologies including Cobb-Douglas, the model implies that the relative price of nontraded goods in each country should reflect the relative productivity of labor in the traded and nontraded goods sectors.  Second, the model assumes that purchasing power parity holds for traded goods in the long-run.  We test each of these implications using data from a panel of OECD countries.  Our results suggest that the first of these two fits the data quite well.  In the long run, relative prices generally reflect relative labor productivities. The evidence on purchasing power parity in traded goods is considerably less favorable.  When we look at US dollar exchange rates, PPP does not appear to hold for traded goods, even in the long run.  On the other hand, when we look at DM exchange rates purchasing power parity appears to be a somewhat better characterization of traded goods prices.
ER  -