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Fluctuations, Bilateral Trade and the Exchange Rate Regime

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Author Info
Jean IMBS

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Abstract

In a recent paper, Frankel and Rose (1998) documented endogenous effects of a monetary union, whereby costs and benefits of the union evolve after its implementation. This paper questions their findings on three grounds. First, their main result that trading partners display relatively more synchronized cycles is not robust to the presence of fixed effects, or variables omitted from their estimation liable to generate both intense trade and synchronized cycles. Second, the cost of giving up independent monetary policy is usually evaluated on the basis of the extent of co-fluctuations between business cycles. We bring into focus which measure of the cycle ought to be used for that purpose. In particular, such measure should in our opinion reflect how synchronized cycles would be in the absence of independent monetary policy. Third, documenting the assumption that fixed exchange rate regimes translate into more bilateral trade has proved elusive. We show that using a bilateral rather than cross-country approach brings little improvement on that front.

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Publisher Info
Paper provided by Université de Lausanne, Faculté des HEC, DEEP in its series Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) with number 9906.

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Length: 15 pages
Date of creation: Apr 1998
Date of revision: Nov 1998
Handle: RePEc:lau:crdeep:9906

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Postal: Université de Lausanne, Faculté des HEC, DEEP, Internef, CH-1015 Lausanne
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Web page: http://www.hec.unil.ch/deep/publications-english/e-cahiers.htm

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Related research
Keywords: trade; optimal currency area; international business cycle;

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Find related papers by JEL classification:
F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Jeffrey A. Frankel & David Romer, 1996. "Trade and Growth: An Empirical Investigation," NBER Working Papers 5476, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Frankel, Jeffrey A & Rose, Andrew K, 1996. "The Endogeneity of the Optimum Currency Area Criteria," CEPR Discussion Papers 1473, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  3. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1994. "Dynamics of the Trade Balance and the Terms of Trade: The J-Curve?," American Economic Review, American Economic Association, vol. 84(1), pages 84-103, March. [Downloadable!] (restricted)
    Other versions:
  4. Hornstein, Andreas & Praschnik, Jack, 1997. "Intermediate inputs and sectoral comovement in the business cycle," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 573-595, December. [Downloadable!] (restricted)
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  5. Frankel, Jeffrey & Stein, Ernesto & Wei, Shang-jin, 1995. "Trading blocs and the Americas: The natural, the unnatural, and the super-natural," Journal of Development Economics, Elsevier, vol. 47(1), pages 61-95, June. [Downloadable!] (restricted)
  6. Canova, Fabio, 1993. "Sources and Propagation of International Business Cycles: Common Shocks or Transmission?," CEPR Discussion Papers 781, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  7. Philippe Bacchetta & Eric van Wincoop, 1998. "Does exchange rate stability increase trade and capital flows?," Research Paper 9818, Federal Reserve Bank of New York. [Downloadable!]
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  8. Gagnon, Joseph E., 1993. "Exchange rate variability and the level of international trade," Journal of International Economics, Elsevier, vol. 34(3-4), pages 269-287, May. [Downloadable!] (restricted)
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  9. Luca Ricci, 2006. "Uncertainty, Flexible Exchange Rates, and Agglomeration," Open Economies Review, Springer, vol. 17(2), pages 197-219, April. [Downloadable!] (restricted)
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  10. Jean IMBS, 1998. "Technology, Growth and the Business Cycle," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9821, Université de Lausanne, Faculté des HEC, DEEP. [Downloadable!]
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  11. Agathe Cote, 1994. "Exchange Rate Volatility and Trade," International Trade 9406001, EconWPA, revised 23 Jun 1994. [Downloadable!]
  12. Kollmann, Robert, 2001. "Explaining international comovements of output and asset returns: The role of money and nominal rigidities," Journal of Economic Dynamics and Control, Elsevier, vol. 25(10), pages 1547-1583, October. [Downloadable!] (restricted)
  13. Frankel, Jeffrey A. & Rose, Andrew K., 1997. "Is EMU more justifiable ex post than ex ante?," European Economic Review, Elsevier, vol. 41(3-5), pages 753-760, April. [Downloadable!] (restricted)
  14. Artis, Michael J & Zhang, Wenda, 1995. "International Business Cycles and the ERM: Is there a European Business Cycle?," CEPR Discussion Papers 1191, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  15. David T. Coe & Elhanan Helpman, 1993. "International R&D Spillovers," IMF Working Papers 93/84, International Monetary Fund.
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  16. Jean IMBS, 1998. "Co-Fluctuations," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9819, Université de Lausanne, Faculté des HEC, DEEP. [Downloadable!]
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  17. Canova, Fabio & Dellas, Harris, 1993. "Trade interdependence and the international business cycle," Journal of International Economics, Elsevier, vol. 34(1-2), pages 23-47, February. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Salvador BARROS & Marius BRÜLHART & Robert J.R. ELLIOTT & Marianne SENSIER, 2001. "A Tale of Two Cycles: Co-Fluctuations Between UK Regions and the Euro Zone," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 01.10, Université de Lausanne, Faculté des HEC, DEEP. [Downloadable!]
    Other versions:
  2. Loisel, Olivier, 2004. "Endogenously asymmetric demand shocks in a monetary union," CEPREMAP Working Papers (Couverture Orange) 0405, CEPREMAP. [Downloadable!]
  3. Kwanho Shin & Yunjong Wang, 2005. "The Impact of Trade Integration on Business Cycle Co-Movements in Europe," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 141(1), pages 104-123, April. [Downloadable!] (restricted)
  4. Marianne Baxter & Michael A. Kouparitsas, 2004. "Determinants of Business Cycle Comovement: A Robust Analysis," NBER Working Papers 10725, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  5. Jean IMBS, 1998. "Co-Fluctuations," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9819, Université de Lausanne, Faculté des HEC, DEEP. [Downloadable!]
    Other versions:
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