Global Value Chains and External Adjustment: Do Exchange Rates Still Matter?
IMF Working Papers, December 27, 2019
Source details
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- Global Value Chains and External Adjustment: Do Exchange Rates Still Matter?
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Bibliographic details
- Authors: Gustavo Adler, Sergii Meleshchuk
- Published: December 27, 2019
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513521985.001
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.
- Overall conclusion: 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.
Key findings
- 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.
- Greater value chain integration is associated with larger gross trade flows, relative to GDP, which tends to amplify the effect of exchange rate movements.
- Combining the two effects (lower elasticity of gross trade volumes, but larger gross trade flows relative to GDP) suggests no material alteration in how exchange rates facilitate external adjustment for most countries.
Subject areas and keywords
- Subject: Currencies, Exchange rates, Exports, Foreign exchange, Global value chains, Globalization, International trade, Money, Trade balance
- Keywords: Currencies, exchange rate, Exchange rates, Exports, foreign exchange intervention, Global, Global value chains, GVC integration, GVC measure, GVC participation, GVC shifter, inflation targeting, movements vis-à-vis third-party country, shocks vis-à-vis, Trade balance, trade elasticity, upstream supplier, WP
Content in this bundle
- Working Paper