02090cas a2200253 a 4500 AALejournalIMF003864 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451847987 1018-5941 BD-DhAAL BD-DhAAL Asea, Patrick. Do Long-Run Productivity Differentials Explain Long-Run Real Exchange Rates? / Patrick Asea, Enrique Mendoza. Washington, D.C. : International Monetary Fund, 1994. 1 online resource (46 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students We develop a two-country, balanced-growth intertemporal general equilibrium model to examine two predictions of the Balassa-Samuelson model, namely that (i) productivity differentials determine the domestic relative price of nontradables and (ii) deviations from purchasing power parity reflect differences in the relative price of nontradables. In our model, the equilibrium relative price of nontradables along the long-run balanced-growth path is determined by the ratio of the marginal products of labor in the tradable and nontradable sectors. The empirical relevance of the Balassa-Samuelson predictions is examined using the Hodrick-Prescott filter to extract long-run components from a panel database for fourteen OECD countries. The evidence indicates that labor productivity differentials do explain long-run, cross-country differences in relative prices. The predicted relative prices, however, are of little help in explaining long-run deviations from purchasing power parity. Mode of access: Internet Mendoza, Enrique. IMF Working Papers; Working Paper ; No. 1994/060 Full text available on IMF http://elibrary.imf.org/view/journals/001/1994/060/001.1994.issue-060-en.xml IMF e-Library