Demand for Value Added and Value-Added Exchange Rates
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Summary:
We examine the role of cross-border input linkages in governing how international relative price changes influence demand for domestic value added. We define a novel value-added real effective exchange rate (REER), which aggregates bilateral value-added price changes, and link this REER to demand for value added. Input linkages enable countries to gain competitiveness following depreciations by supply chain partners, and hence counterbalance beggar-thy-neighbor effects. Cross-country differences in input linkages also imply that the elasticity of demand for value added is country specific. Using global input-output data, we demonstrate these conceptual insights are quantitatively important and compute historical value-added REERs.
Series:
Working Paper No. 2015/199
Subject:
Competition Demand elasticity Economic theory Exchange rates Exports Financial markets Foreign exchange International trade Real effective exchange rates
English
Publication Date:
September 8, 2015
ISBN/ISSN:
9781513595047/1018-5941
Stock No:
WPIEA2015199
Pages:
70
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