## Demand for Value Added and Value-Added Exchange Rates

_IMF Working Papers, September 8, 2015_

## Source details

**Canonical URL:** [Demand for Value Added and Value-Added Exchange Rates](https://www.imf.org/en/publications/wp/issues/2016/12/31/demand-for-value-added-and-value-added-exchange-rates-43264)

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## Bibliographic details
- Authors: Rudolfs Bems, Robert C. Johnson
- Published: September 8, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513595047.001

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### Summary
- Authors: Rudolfs Bems, Robert C. Johnson
- Date: September 8, 2015
- Core question: Role of cross-border input linkages in governing how international relative price changes influence demand for domestic value added.
- Novel contribution: Definition of a value-added real effective exchange rate (REER) that aggregates bilateral value-added price changes and links this REER to demand for value added.
- Key conceptual points:
  - Input linkages enable countries to gain competitiveness following depreciations by supply chain partners, counterbalancing beggar-thy-neighbor effects.
  - Cross-country differences in input linkages imply that the elasticity of demand for value added is country specific.
- Empirical approach: Use of global input-output data to demonstrate the quantitative importance of these conceptual insights and to compute historical value-added REERs.

### Major findings and quantitative highlights
- Input linkages can alter competitiveness effects from exchange rate movements, enabling competitive gains when supply chain partners depreciate.
- Elasticity of demand for value added varies by country because of differences in cross-border input linkages.
- The paper computes historical value-added REERs using global input-output data, demonstrating the quantitative relevance of the value-added REER concept.

### Methodology and data
- Framework: Development of a value-added REER that aggregates bilateral value-added price changes and links that REER to demand for value added.
- Data: Global input-output data used to quantify conceptual insights and to compute historical value-added REERs.

### Subject areas and keywords
- Subject: Competition, Demand elasticity, Economic theory, Exchange rates, Exports, Financial markets, Foreign exchange, International trade, Real effective exchange rates
- Keywords: Armington-REER change, Armington-REER framework, Armington-REER index, Asia and Pacific, changes in the Armington-REER, Competition, Demand elasticity, demand system, Exchange rates, Exports, Global, global supply chains, production elasticity, Real effective exchange rate, Real effective exchange rates, real value, REER weight, value-added REER, weight difference, WP

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/demand-for-value-added-and-value-added-exchange-rates-43264_