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Spillover Effects of Exchange Rates

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  • Arvind Subramanian
  • Prachi Mishra
  • Aaditya Mattoo

Abstract

This paper estimates the impact of China''s exchange rate changes on exports of competitor countries in third markets, which we call the "spillover effect". We use recent theory to develop an identification strategy in which competition between China and its developing country competitors in specific products and destinations plays a key role. We exploit the variation - afforded by disaggregated trade data - across exporters, importers, product, and time to estimate this spillover effect. We find robust evidence of a statistically and quantitatively significant spillover effect. Our estimates suggest that a 10 percent appreciation of China''s real exchange rate boosts on average a developing country''s exports of a typical 4-digit HS product category to third markets by about 1.5-2 percent. The magnitude of the spillover effect varies systematically with product characteristics as implied by theory.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/88.

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Length: 37
Date of creation: 01 Mar 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/88

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Related research

Keywords: Exchange rates; Developing countries; Exchange rate adjustments; Spillovers; exchange rate; exporter; exporters; real exchange rate; effective exchange rate; exchange rate changes; developing country exports; real effective exchange rate; exchange rate pass; bilateral exchange rate; exchange rate movements; nominal exchange rate; country exporters; export prices; total exports; exporting countries; developing country exporters; exchange rate policy; nominal effective exchange rate; export performance; alternative exchange rate; export dynamics; import prices; exchange rate depreciation; nominal bilateral exchange rate; market exchange rates; effective exchange rates; export data; effect of exchange rate changes; value of exports; trade flows; exchange risk; real effective exchange rates; currency exchange rate; exchange rate pegs; asian exports; exchange rate fluctuations; real exchange rates; real exports; multilateral exchange rate; dollar exchange rate; currency unions; currency exchange; exchange rate policies; elasticity of exports; exchange rate data;

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References

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  1. Kristin J Forbes, 2002. "How Do Large Depreciations Affect Firm Performance?," IMF Staff Papers, Palgrave Macmillan, vol. 49(Special i), pages 214-238.
  2. Daron Acemoglu & Simon Johnson, 2006. "Disease and Development: The Effect of Life Expectancy on Economic Growth," NBER Working Papers 12269, National Bureau of Economic Research, Inc.
  3. Gordon H. Hanson & Raymond Robertson, 2008. "China and the Manufacturing Exports of Other Developing Countries," NBER Working Papers 14497, National Bureau of Economic Research, Inc.
  4. David Weinstein & Christian Broda, 2004. "Globalization and the Gains from Variety," 2004 Meeting Papers, Society for Economic Dynamics 530, Society for Economic Dynamics.
  5. Simon Johnson & Jonathan D Ostry & Arvind Subramanian, 2010. "Prospects for Sustained Growth in Africa: Benchmarking the Constraints," IMF Staff Papers, Palgrave Macmillan, vol. 57(1), pages 119-171, April.
  6. Gita Gopinath & Oleg Itskhoki & Roberto Rigobon, 2010. "Currency Choice and Exchange Rate Pass-Through," American Economic Review, American Economic Association, American Economic Association, vol. 100(1), pages 304-36, March.
  7. Goldstein, Morris & Khan, Mohsin S., 1985. "Income and price effects in foreign trade," Handbook of International Economics, Elsevier, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 20, pages 1041-1105 Elsevier.
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Cited by:
  1. Allegret, Jean-Pierre & Sallenave, Audrey, 2014. "The impact of real exchange rates adjustments on global imbalances: A multilateral approach," Economic Modelling, Elsevier, Elsevier, vol. 37(C), pages 149-163.

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