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Value-Added Exchange Rates

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  • Rudolfs Bems
  • Robert C. Johnson

Abstract

This paper updates the conceptual foundations for measuring real effective exchange rates (REERs) to allow for vertical specialization in trade. We derive a value-added REER describing how demand for the value added that a country produces changes as the price of its value added changes relative to competitors. We then compute this index for 42 countries from 1970-2009 using trade measured in value added terms and GDP deflators. There are substantial differences between value-added and conventional REERs. For example, China's value-added REER appreciated by 20 percentage points more than the conventional REER from 2000-2009. These differences are driven mainly by the theory-motivated shift in prices used to construct the value-added REER, not changes in bilateral weights.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18498.

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Date of creation: Oct 2012
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Handle: RePEc:nbr:nberwo:18498

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References

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  1. Kei-Mu Yi, 2003. "Can Vertical Specialization Explain the Growth of World Trade?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 111(1), pages 52-102, February.
  2. Vries, Gaaitzen J. de & Stehrer, Robert & Los, Bart & Erumban, Abdul Azeez & Timmer, Marcel, 2013. "Slicing Up Global Value Chains," GGDC Research Memorandum, Groningen Growth and Development Centre, University of Groningen GD-135, Groningen Growth and Development Centre, University of Groningen.
  3. Johnson, Robert C. & Noguera, Guillermo, 2012. "Accounting for intermediates: Production sharing and trade in value added," Journal of International Economics, Elsevier, Elsevier, vol. 86(2), pages 224-236.
  4. Schmitz, Martin & De Clercq, Maarten & Fidora, Michael & Lauro, Bernadette & Pinheiro, Cristina, 2012. "Revisiting the effective exchange rates of the euro," Occasional Paper Series 134, European Central Bank.
  5. Spilimbergo, Antonio & Vamvakidis, Athanasios, 2003. "Real effective exchange rate and the constant elasticity of substitution assumption," Journal of International Economics, Elsevier, Elsevier, vol. 60(2), pages 337-354, August.
  6. Robert C. Johnson & Guillermo Noguera, 2012. "Fragmentation and Trade in Value Added over Four Decades," NBER Working Papers 18186, National Bureau of Economic Research, Inc.
  7. Robert C. Johnson, 2012. "Trade in Intermediate Inputs and Business Cycle Comovement," NBER Working Papers 18240, National Bureau of Economic Research, Inc.
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Citations

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Cited by:
  1. João Amador & Sónia Cabral, 2014. "Global Value Chains: Surveying Drivers, Measures and Impacts," Working Papers, Banco de Portugal, Economics and Research Department w201403, Banco de Portugal, Economics and Research Department.
  2. Kwan Yong Lee & Kanda Naknoi, 2014. "Exchange Rates, Borrowing Costs and Exports: Firm-Level Evidence," Working papers, University of Connecticut, Department of Economics 2014-18, University of Connecticut, Department of Economics.
  3. Rudolfs Bems & Robert C. Johnson & Kei-Mu Yi, 2013. "The Great Trade Collapse," Annual Review of Economics, Annual Reviews, Annual Reviews, vol. 5(1), pages 375-400, 05.
  4. Elisabeth Beusch & Barbara Döbeli & Andreas M. Fischer & Pinar Yesin, 2013. "Merchanting and current account balances," Globalization and Monetary Policy Institute Working Paper, Federal Reserve Bank of Dallas 140, Federal Reserve Bank of Dallas.
  5. Brian McCaig & Nina Pavcnik, 2013. "Moving out of Agriculture: Structural Change in Vietnam," NBER Working Papers 19616, National Bureau of Economic Research, Inc.
  6. Benkovskis, Konstantins & Wörz, Julia, 2014. "What drives the market share changes? price versus non-price factors," Working Paper Series, European Central Bank 1640, European Central Bank.
  7. Robert C. Johnson, 2014. "Five Facts about Value-Added Exports and Implications for Macroeconomics and Trade Research," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 28(2), pages 119-42, Spring.
  8. Andrew Tiffin, 2014. "European Productivity, Innovation and Competitiveness: The Case of Italy," IMF Working Papers 14/79, International Monetary Fund.
  9. Nikhil Patel & Zhi Wang & Shang-Jin Wei, 2014. "Global Value Chains and Effective Exchange Rates at the Country-Sector Level," NBER Working Papers 20236, National Bureau of Economic Research, Inc.

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