Trade margins and exchange rate regimes: new evidence from a panel VAR
AbstractThis paper studies how trade margins respond to output and terms of trade shocks in different exchange rate regimes within a panel of 23 OECD economies over the period 1988-2011. Using a panel VAR model, we confirm the predictions of entry models about the behaviour of export margins over the cycle. In addition, we find remarkable differences depending on the exchange rate regime. We document that fixed exchange rates have a positive effect on the extensive margin of trade in response to external shocks while flexible exchange rates have a pro-trade effect in response to output shocks. Our results imply that as long as extensive margins are a relevant portion of trade and external shocks are a major source of business cycle variability, the stabilization advantage of flexible exchange rates may be lower than previously thought.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 51585.
Date of creation: 2013
Date of revision:
trade margins; international business cycle; Panel VAR model; exchange rate regimes.;
Find related papers by JEL classification:
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
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