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Export Dynamics in Large Devaluations

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  • George Alessandria

    (Federal Reserve Bank of Philadelphia)

  • Sangeeta Pratap

    (City University of New York)

  • Vivian Yue

    (Federal Reserve Board of Governors and Hong Kong Institute for Monetary Research)

Abstract

This paper studies 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, interest rates, 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 export dynamics leading to more gradual net export dynamics, sharper contractions in output, and endogenous declines in labor productivity

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Bibliographic Info

Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 062013.

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Length: 48 pages
Date of creation: May 2013
Date of revision:
Handle: RePEc:hkm:wpaper:062013

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Keywords: Export Dynamics; Devaluation; Net Exports;

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References

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  1. Timothy J. Kehoe & Kim J. Ruhl, 2007. "Are Shocks to the Terms of Trade Shocks to Productivity?," NBER Working Papers 13111, National Bureau of Economic Research, Inc.
  2. Aguiar, Mark & Gopinath, Gita, 2007. "Emerging Market Business Cycles: The Cycle is the Trend," Scholarly Articles 11988098, Harvard University Department of Economics.
  3. Sanghamitra Das & Mark J. Roberts & James R. Tybout, 2001. "Market Entry Costs, Producer Heterogeneity, and Export Dynamics," NBER Working Papers 8629, National Bureau of Economic Research, Inc.
  4. Lukasz A. Drozd & Jaromir B. Nosal, 2008. "Understanding international prices: customers as capital," Staff Report, Federal Reserve Bank of Minneapolis 411, Federal Reserve Bank of Minneapolis.
  5. Eaton, Jonathan & Eslava, Marcela & Kugler, Maurice & Tybout, James, 2007. "Export Dynamics in Colombia: Firm-Level Evidence," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp07-050, Harvard University, John F. Kennedy School of Government.
  6. George Alessandria & Horag Choi, 2007. "Do Sunk Costs of Exporting Matter for Net Export Dynamics?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 122(1), pages 289-336, 02.
  7. Mark Aguiar & Gita Gopinath, 2007. "Emerging Market Business Cycles: The Cycle Is the Trend," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 115, pages 69-102.
  8. Gita Gopinath & Brent Neiman, 2011. "Trade Adjustment and Productivity in Large Crises," NBER Working Papers 16958, National Bureau of Economic Research, Inc.
  9. 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, American Economic Association, vol. 87(4), pages 545-64, September.
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  13. George Alessandria & Horag Choi, 2010. "Do falling iceberg costs explain recent U.S. export growth?," Working Papers 10-10, Federal Reserve Bank of Philadelphia.
  14. Lawrence Christiano & Martin Eichenbaum & Sergio Rebelo, 2011. "When Is the Government Spending Multiplier Large?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 119(1), pages 78 - 121.
  15. Timothy J. Kehoe & Kim Ruhl, 2008. "Data Appendix to "Are Shocks to the Terms of Trade Shocks to Productivity?"," Technical Appendices, Review of Economic Dynamics 07-40, Review of Economic Dynamics.
  16. Enrique G. Mendoza, 2010. "Sudden Stops, Financial Crises, and Leverage," American Economic Review, American Economic Association, American Economic Association, vol. 100(5), pages 1941-66, December.
  17. Guido Sandleris & Mark L.J. Wright, 2011. "The Costs of Financial Crises: Resource Misallocation, Productivity and Welfare in the 2001 Argentine Crisis," NBER Working Papers 17552, National Bureau of Economic Research, Inc.
  18. 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.
  19. Lukasz A. Drozd & Jaromir B. Nosal, 2012. "Understanding International Prices: Customers as Capital," American Economic Review, American Economic Association, American Economic Association, vol. 102(1), pages 364-95, February.
  20. Meza Felipe & Quintin Erwan, 2007. "Factor Utilization and the Real Impact of Financial Crises," The B.E. Journal of Macroeconomics, De Gruyter, De Gruyter, vol. 7(1), pages 1-41, September.
  21. George Alessandria & Horag Choi, 2007. "Establishment heterogeneity, exporter dynamics, and the effects of trade liberalization," Working Papers 07-17, Federal Reserve Bank of Philadelphia.
  22. Kalina Manova, 2013. "Credit Constraints, Heterogeneous Firms, and International Trade," Review of Economic Studies, Oxford University Press, vol. 80(2), pages 711-744.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  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. Felipe Schwartzman, 2010. "Time to produce and emerging market crises," Working Paper, Federal Reserve Bank of Richmond 10-15, Federal Reserve Bank of Richmond.
  2. Zhen Huo & Jose-Victor Rios-Rull, 2013. "Paradox of thrift recessions," Staff Report, Federal Reserve Bank of Minneapolis 490, Federal Reserve Bank of Minneapolis.
  3. Cooke, Dudley, 2014. "Monetary shocks, exchange rates, and the extensive margin of exports," Journal of International Money and Finance, Elsevier, Elsevier, vol. 41(C), pages 128-145.
  4. Jose-Victor Rios-Rull & Zhen Huo, 2013. "Realistic neoclassical multiplier," Economic Policy Paper, Federal Reserve Bank of Minneapolis 13-5, Federal Reserve Bank of Minneapolis.

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