Exchange Rates and Trade: A Disconnect?
IMF Working Papers, March 15, 2017
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- Exchange Rates and Trade: A Disconnect?
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Bibliographic details
- Authors: Daniel Leigh, Weicheng Lian, Marcos Poplawski Ribeiro, Rachel Szymanski, Viktor Tsyrennikov, Hong Yang
- Published: March 15, 2017
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475587494.001
Overview
- Title: Exchange Rates and Trade: A Disconnect?
- Authors: Daniel Leigh, Weicheng Lian, Marcos Poplawski Ribeiro, Rachel Szymanski, Viktor Tsyrennikov, Hong Yang
- Date: March 15, 2017
- Series: Working Paper No. 2017/058
- Core summary: The paper examines the stability and strength of the relationship between exchange rates and trade over time using three alternative approaches that mitigate endogeneity. It finds that exchange rate pass-through and the price elasticity of trade volumes are largely stable over time; economic slack and financial conditions affect the relationship; limited evidence that participation in global value chains has significantly changed the exchange rate–trade relationship over time.
Methods and Analytical Approach
- Uses three alternative approaches to examine the exchange rate–trade relationship.
- Explicitly addresses endogeneity of the relationship (mitigation of endogeneity is a methodological emphasis).
- Empirical focus on exchange rate pass-through and the price elasticity of trade volumes.
Key Findings
- Exchange rate pass-through is largely stable over time.
- Price elasticity of trade volumes is largely stable over time.
- Economic slack affects the exchange rate–trade relationship.
- Financial conditions affect the exchange rate–trade relationship.
- There is limited evidence that participation in global value chains has significantly changed the exchange rate–trade relationship over time.
Subjects and Keywords (as listed)
- Subjects: Depreciation, Exchange rate pass-through, Exchange rates, Export prices, Exports, Foreign exchange, International trade, National accounts, Prices
- Keywords: Africa, Asia and Pacific, Depreciation, depreciation episode, Europe, exchange rate disconnect, Exchange rate pass-through, exchange rate-trade, Exchange rates, exchange rates and trade, export price response, Export prices, Exports, Global, global trade, price elasticity, producer price index, real GDP, trade elasticity, trade equation, trade volume, WP
Content in this bundle
- Exchange Rates and Trade: A Disconnect?, WP/17/58, March 2017