The trade balance and the real exchange rate
AbstractGlobalisation has affected the relationship between the trade balance and the real exchange rate in two ways. On the one hand, the growth of trade taking place within industries makes the trade balance more sensitive to real exchange movements. On the other hand, a higher degree of vertical specialisation and more global supply chains act to reduce this sensitivity. The relative importance of these two effects varies across countries. According to the estimates presented in this article, changes in the real exchange rate could play a larger role in curbing the US trade deficit than in reducing the Chinese trade surplus. This confirms that real exchange rate adjustment is only part of the solution for global rebalancing, and needs to be accompanied by other policy actions.
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Bibliographic InfoArticle provided by Bank for International Settlements in its journal BIS Quarterly Review.
Volume (Year): (2011)
Issue (Month): (September)
Find related papers by JEL classification:
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
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- Yin-Wong Cheung & Menzie Chinn & Eiji Fujii, 2009. "Pitfalls in Measuring Exchange Rate Misalignment," Open Economies Review, Springer, vol. 20(2), pages 183-206, April.
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