Fig. 1

Tradable productivity and the real exchange rate: using data from 1984 to 2008, the plots show the relationship between the real exchange rate and total factor productivity from the OECD productivity database (PDBi). The plots on the left side show the bivariate relationship of the two variables (both the productivity measure and the real exchange rate have been adjusted by country and time fixed effects). The plots on the right side show the results of partial regressions (Velleman and Welsch 1981). On the vertical axis, they show the residuals of a regression of the real exchange rate on the following control variables: non-tradable productivity, terms of trade, country, and time fixed effects. On the horizontal axis, they show the residuals of a regression of productivity in the tradable sector based on the same control variables