João Cerejeira

Aggregate and Sector-Specific Exchange Rate Indexes for the Portuguese Economy

In this paper, we compute and compare aggregate and sector-specific exchange rate indexes for the Portuguese economy. We find that alternative effective exchange rate indexes are very similar between them. We also find that sector-specific effective exchange rates are strongly correlated with aggregate indexes. Nevertheless, we show that sector-specific exchange rates are more informative than aggregate exchange rates in explaining changes in employment: whereas aggregate indexes are statistically insignificant in employment equations, regressions using sector-specific exchange rate indexes show a statistically significant and economically large effect of exchange rates on employment.

Exchange Rates, Employment and Labour Market Rigidity

In this paper, we study the effect of labour market rigidity on the impact of exchange rate shocks on employment. We use a panel dataset comprising 22 manufacturing sectors across 23 OECD countries. In our econometric model, the impact of exchange rate fluctuations on sectoral employment is mediated by the degree of openness and by a measure of labour market rigidity: the OECDs employment protection legislation (EPL) index. Our results suggest that greater labour market rigidity reduces the impact of exchange rate shocks on employment. This effect is statistically significant for low-technology sectors.