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NZCM Newsletter

NZCM Newsletter

NZCM Newsletter #1

The goal of the New Zealand Centre for Macroeconomics is to improve the quality of macroeconomic research in New Zealand. By creating a hub, the NZCM hopes to facilitate research interaction between local academics, their interaction with the policy researchers, and aid the development of graduate students in macroeconomics. New Zealand is a prototypical small open economy of many macroeconomic models, open wide to capital and trade flows, with an active policy discourse to promote competitiveness, and a strong history of engagement in the economic development of the Asia-Pacific. For these reasons, the NZCM starts up with four research programmes: International Economics; Monetary policy, financial stability and macro-financial linkages; NZ macro-economy, productivity and regional development; and Economic growth and development. In addition to organizing regular workshops, NZCM disseminates research of its members by circulating working papers as NZCM working papers, disseminated on our webpage (nzmacrobu.wpengine.com), and in the social media.

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NZCM Working Paper

NZCM Working Paper

Deviations in Real Exchange Rate Levels in the OECD Countries

Martin Berka and Daan Steenkamp

We evaluate an augmented Balassa-Samuelson hypothesis using a newly constructed panel dataset of levels of sectoral TFP, as well as a panel of real 18 exchange rate levels for 17 OECD countries between 1970 and 2012. We find that the Balassa-Samuelson mechanism is present, especially after we control for differences in labour market institutions and unit labour costs. We augment the model in Berka et al. (2018) for sectoral differences in firms’ markups, as in Gal´ı et al. (2007) and Karabarbounis (2014), and show that it implies the need for augmenting the Balassa-Samuelson empirical framework for measures of institutional labour market differences, as well as the unit labour costs.

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