IMF Working Papers

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

By Gustavo Adler, Sergii Meleshchuk, Carolina Osorio Buitron

December 27, 2019

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Gustavo Adler, Sergii Meleshchuk, and Carolina Osorio Buitron. Global Value Chains and External Adjustment: Do Exchange Rates Still Matter?, (USA: International Monetary Fund, 2019) accessed September 20, 2024

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.

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

Publication Details

  • Pages:

    27

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2019/300

  • Stock No:

    WPIEA2019300

  • ISBN:

    9781513521985

  • ISSN:

    1018-5941

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