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Export dynamics in large devaluations

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  • George Alessandria
  • Sangeeta Pratap
  • Vivian Yue

Abstract

We study the source and consequences of sluggish export dynamics in emerging markets following large devaluations. We document two main features of exports that are puzzling for standard trade models. First, given the change in relative prices, exports tend to grow gradually following a devaluation. Second, high interest rates tend to suppress exports. To address these features of export dynamics, we embed a model of endogenous export participation due to sunk and per period export costs into an otherwise standard small open economy. In response to shocks to productivity, the interest rate, and the discount factor, we find the model can capture the salient features of export dynamics documented. At the aggregate level, the features giving rise to sluggish exports lead to more gradual net export reversals, sharper contractions and recoveries in output, and endogenous stagnation in labor productivity.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 1087.

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Date of creation: 2013
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Handle: RePEc:fip:fedgif:1087

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  1. Mark Aguiar & Gita Gopinath, 2004. "Emerging market business cycles: the cycle is the trend," Working Papers 04-4, Federal Reserve Bank of Boston.
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  7. Jonathan Eaton, Marcela Eslava, Maurice Kugler, and James Tybout, 2007. "Export Dynamics in Colombia: Firm-Level Evidence," Working Papers eg0038, Wilfrid Laurier University, Department of Economics, revised 2007.
  8. George Alessandria & Horag Choi, 2010. "Do falling iceberg costs explain recent U.S. export growth?," Working Papers 10-10, Federal Reserve Bank of Philadelphia.
  9. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2009. "When is the government spending multiplier large?," NBER Working Papers 15394, National Bureau of Economic Research, Inc.
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  13. Neumeyer, Pablo A. & Perri, Fabrizio, 2005. "Business cycles in emerging economies: the role of interest rates," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 345-380, March.
  14. George Alessandria & Horag Choi, 2007. "Establishment heterogeneity, exporter dynamics, and the effects of trade liberalization," Working Papers 07-17, Federal Reserve Bank of Philadelphia.
  15. Stephen P. Magee, 1973. "Currency Contracts, Pass-Through, and Devaluation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(1), pages 303-325.
  16. Enrique G. Mendoza, 2010. "Sudden Stops, Financial Crises, and Leverage," American Economic Review, American Economic Association, vol. 100(5), pages 1941-66, December.
  17. Aguiar, Mark & Gopinath, Gita, 2007. "Emerging Market Business Cycles: The Cycle is the Trend," Scholarly Articles 11988098, Harvard University Department of Economics.
  18. Meza Felipe & Quintin Erwan, 2007. "Factor Utilization and the Real Impact of Financial Crises," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-41, September.
  19. George Alessandria & Horag Choi, 2007. "Do Sunk Costs of Exporting Matter for Net Export Dynamics?," The Quarterly Journal of Economics, MIT Press, vol. 122(1), pages 289-336, 02.
  20. Charles Engel & Jian Wang, 2008. "International Trade in Durable Goods: Understanding Volatility, Cyclicality, and Elasticities," NBER Working Papers 13814, National Bureau of Economic Research, Inc.
  21. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, vol. 87(4), pages 545-64, September.
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  1. Export Dynamics in Large Devaluations
    by Christian Zimmermann in NEP-DGE blog on 2013-06-09 00:48:43
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Cited by:
  1. Zhen Huo & Jose-Victor Rios-Rull, 2013. "Paradox of thrift recessions," Staff Report 490, Federal Reserve Bank of Minneapolis.
  2. Cooke, Dudley, 2014. "Monetary shocks, exchange rates, and the extensive margin of exports," Journal of International Money and Finance, Elsevier, vol. 41(C), pages 128-145.
  3. Jose-Victor Rios-Rull & Zhen Huo, 2013. "Realistic neoclassical multiplier," Economic Policy Paper 13-5, Federal Reserve Bank of Minneapolis.
  4. Felipe Schwartzman, 2010. "Time to produce and emerging market crises," Working Paper 10-15, Federal Reserve Bank of Richmond.

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