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How Important Are Trade Prices for Trade Flows?

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  • Logan T. Lewis

    (Federal Reserve Board)

Abstract

US imports and exports respond little to exchange rate changes in the short run. Firms’ pricing behavior is thought central to explaining this response: If local prices do not respond to exchange rates, neither will trade flows. Sticky prices, strategic complementarities, and imported intermediates can reduce the trade response, and they are necessary to match newly available international micro price data. Using trade flow data, I test models designed to match these trade price data. Even with significant pricing frictions, the models imply a stronger trade response to exchange rates than found in the data. Moreover, despite substantial cross-sector heterogeneity, differential responses implied by the model find little to no support in the data.

Suggested Citation

  • Logan T. Lewis, 2017. "How Important Are Trade Prices for Trade Flows?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 65(3), pages 471-497, August.
    • Handle: RePEc:pal:imfecr:v:65:y:2017:i:3:d:10.1057_s41308-017-0037-1
    DOI: 10.1057/s41308-017-0037-1
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    Cited by:

    1. Bernabe Lopez‐Martin, 2022. "Firm Export Dynamics And The Exchange Rate: A Quantitative Exploration," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(3), pages 1137-1163, August.
    2. Yusuf Emre Akgündüz & Salih Fendoğlu, 2022. "Export Prices, Imported Inputs, and Domestic Supply Networks," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 70(3), pages 383-419, September.
    3. Jiangyuan Fu & Linyi Chen & Huidan Xue, 2023. "The Impacts of Trade Facilitation Provisions on Fresh Agricultural Products Trade between China and the BRI Countries," Agriculture, MDPI, vol. 13(2), pages 1-17, January.

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    More about this item

    Keywords

    F14; F31; F32; E31;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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