Global Value Chains and External Adjustment: Do Exchange Rates Still Matter?

Author/Editor:

Gustavo Adler ; Sergii Meleshchuk ; Carolina Osorio Buitron

Publication Date:

December 27, 2019

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

The paper explores how international integration through global value chains shapes the working of exchange rates to induce external adjustment both in the short and medium run. The analysis indicates that greater integration into international value chains reduces the exchange rate elasticity of gross trade volumes. This result holds both in the short and medium term, pointing to the rigidity of value chains. At the same time, greater value chain integration is associated with larger gross trade flows, relative to GDP, which tends to amplify the effect of exchange rate movements. Overall, combining these two results suggests that, for most countries, integration into global value chains does not materially alter the working of exchange rates and the benefits of exchange rate flexibility in facilitating external adjustment remain.

Series:

Working Paper No. 19/300

Subject:

English

Publication Date:

December 27, 2019

ISBN/ISSN:

9781513521985/1018-5941

Stock No:

WPIEA2019300

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

27

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