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Export Dynamics in Large Devaluations

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Author Info

  • 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. 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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  3. 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.
  4. Gita Gopinath & Brent Neiman, 2011. "Trade adjustment and productivity in large crises," Working Papers, Federal Reserve Bank of Boston 11-9, Federal Reserve Bank of Boston.
  5. Engel, Charles & Wang, Jian, 2011. "International trade in durable goods: Understanding volatility, cyclicality, and elasticities," Journal of International Economics, Elsevier, vol. 83(1), pages 37-52, January.
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  8. Enrique G. Mendoza, 2010. "Sudden Stops, Financial Crises, and Leverage," American Economic Review, American Economic Association, vol. 100(5), pages 1941-66, December.
  9. George Alessandria & Horag Choi, 2007. "Establishment heterogeneity, exporter dynamics, and the effects of trade liberalization," Working Papers 07-17, Federal Reserve Bank of Philadelphia.
  10. George Alessandria & Horag Choi, 2005. "Do sunk costs of exporting matter for net export dynamics?," Working Papers 05-20, Federal Reserve Bank of Philadelphia.
  11. Baldwin, Richard & Krugman, Paul, 1989. "Persistent Trade Effects of Large Exchange Rate Shocks," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 104(4), pages 635-54, November.
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  17. 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.
  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. 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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  21. George Alessandria & Horag Choi, 2010. "Do falling iceberg costs explain recent U.S. export growth?," Working Papers 10-10, Federal Reserve Bank of Philadelphia.
  22. 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.
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Citations

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. Zhen Huo & José-Víctor Ríos-Rull, 2013. "Paradox of Thrift Recessions," NBER Working Papers 19443, National Bureau of Economic Research, Inc.
  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. Felipe Schwartzman, 2010. "Time to produce and emerging market crises," Working Paper, Federal Reserve Bank of Richmond 10-15, Federal Reserve Bank of Richmond.
  4. Jose-Victor Rios-Rull & Zhen Huo, 2013. "Realistic neoclassical multiplier," Economic Policy Paper 13-5, Federal Reserve Bank of Minneapolis.

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