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Exchange Rate Regimes And Trade

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  • CHRISTOPHER ADAM
  • DAVID COBHAM

Abstract

A 'new version' of the gravity model is used to estimate the effect of a full range of de facto exchange rate regimes on bilateral trade. The results indicate that, while participation in a common currency union is typically strongly 'pro-trade', other exchange rate regimes which lower the exchange rate uncertainty and transactions costs associated with international trade are significantly more pro-trade than the default regime of a 'double float'. They suggest that the direct and indirect trade-creating effects of these regimes on uncertainty and transactions costs tend to outweigh the trade-diverting substitution effects. Tariff-equivalent monetary barriers associated with each exchange rate regime are also calculated. Copyright � 2007 The Authors; Journal compilation � 2007 Blackwell Publishing Ltd and The University of Manchester.

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Bibliographic Info

Article provided by University of Manchester in its journal Manchester School.

Volume (Year): 75 (2007)
Issue (Month): s1 (09)
Pages: 44-63

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Handle: RePEc:bla:manchs:v:75:y:2007:i:s1:p:44-63

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References

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  1. Reinhart, Carmen, 2002. "A Modern History of Exchange Rate Arrangements: The Country Histories, 1946-2001," MPRA Paper 13191, University Library of Munich, Germany.
  2. Atish R. Ghosh & Anne-Marie Gulde & Holger C. Wolf, 2003. "Exchange Rate Regimes: Choices and Consequences," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262072408, December.
  3. Reinhart, Carmen & Rogoff, Kenneth, 2004. "The modern history of exchange rate arrangements: A reinterpretation," MPRA Paper 14070, University Library of Munich, Germany.
  4. Frankel, Jeffrey & Rose, Andrew K., 2001. "An Estimate of the Effect of Common Currencies on Trade and Income," Working Paper Series rwp01-013, Harvard University, John F. Kennedy School of Government.
  5. Andrew K. Rose & Eric van Wincoop, 2001. "National Money as a Barrier to International Trade: The Real Case for Currency Union," American Economic Review, American Economic Association, vol. 91(2), pages 386-390, May.
  6. Rose, Andrew K, 2003. "Which International Institutions Promote International Trade?," CEPR Discussion Papers 3764, C.E.P.R. Discussion Papers.
  7. Husain, Aasim M. & Mody, Ashoka & Rogoff, Kenneth S., 2005. "Exchange rate regime durability and performance in developing versus advanced economies," Journal of Monetary Economics, Elsevier, vol. 52(1), pages 35-64, January.
  8. James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics 485, Boston College Department of Economics.
  9. Levy-Yeyati, Eduardo & Sturzenegger, Federico, 2005. "Classifying exchange rate regimes: Deeds vs. words," European Economic Review, Elsevier, vol. 49(6), pages 1603-1635, August.
  10. Andrew K. Rose, 2001. "Currency unions and trade: the effect is large," Economic Policy, CEPR & CES & MSH, vol. 16(33), pages 449-461, October.
  11. Emilia Magdalena Jurzyk & Bernhard Fritz-Krockow, 2004. "Will You Buy My Peg? the Credibility of a Fixed Exchange Rate Regime As a Determinant of Bilateral Trade," IMF Working Papers 04/165, International Monetary Fund.
  12. Reinhart, Carmen, 2002. "A Modern History of Exchange Rate Arrangements: Parallel Markets and Dual and Multiple Exchange Rates," MPRA Paper 13194, University Library of Munich, Germany.
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Citations

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Cited by:
  1. Mahvash Saeed Qureshi & Charalambos G. Tsangarides, 2011. "Exchange Rate Regimes and Trade: Is Africa Different?," Working Paper Series UNU-WIDER Working Paper W, World Institute for Development Economic Research (UNU-WIDER).
  2. Isidro Hernandez Rodríguez, 2011. "Tributación y desarrollo en perspectiva," Revista de Economía Institucional, Universidad Externado de Colombia - Facultad de Economía, vol. 13(24), pages 271-302, January-J.
  3. Tomáš Havránek, 2010. "Rose effect and the euro: is the magic gone?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 146(2), pages 241-261, June.
  4. Qureshi, Mahvash Saeed & Tsangarides, Charalambos G., 2012. "Hard or Soft Pegs? Choice of Exchange Rate Regime and Trade in Africa," World Development, Elsevier, vol. 40(4), pages 667-680.
  5. Tomasz Brodzicki & Stanislaw Uminski, 2013. "International trade relations of enterprises established in Poland's regions: gravity model panel estimation," Working Papers 1301, Instytut Rozwoju, Institute for Development.
  6. Robin Pope, 2009. "Beggar-Thy-Neighbour Exchange Rate Regime Misadvice from Misapplications of Mundell (1961 ) and the Remedy," The World Economy, Wiley Blackwell, vol. 32(2), pages 326-350, 02.
  7. Christopher Adam & David Cobham, 2008. "Alternative Exchange Rate Regimes for MENA countries: Gravity Model Estimates of the Trade Effects," CERT Discussion Papers 0803, Centre for Economic Reform and Transformation, Heriot Watt University.
  8. Emilia Penkova-Pearson, 2012. "Trade, convergence and exchange rate regime: evidence from Bulgaria and Romania," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 1(1), pages 107-139.
  9. Bracke, Thierry & Bunda, Irina, 2011. "Exchange rate anchoring - Is there still a de facto US dollar standard?," Working Paper Series 1353, European Central Bank.
  10. Tomáš Havránek, 2009. "Rose Effect and the Euro: The Magic is Gone," Working Papers IES 2009/20, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Aug 2009.
  11. Rodolfo Metulini, 2013. "A structural analysis on Gravity of Trade regarding the possibility to remove distance from the model," ERSA conference papers ersa13p520, European Regional Science Association.
  12. Mahvash Saeed Qureshi & Charalambos G. Tsangarides, 2010. "The Empirics of Exchange Rate Regimes and Trade," IMF Working Papers 10/48, International Monetary Fund.

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