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Exchange rate regimes and trade prices: does the EMS matter?

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  • André Sapir
  • Khalid Sekkat

Abstract

This paper investigates the role of the exchange rate regime in the process of trade adjustment, by examining the relationship between trade prices and exchange rate regimes. The theoretical framework is a dynamic one à la Froot-Klemperer (1989). The empirical investigation takes advantage of the simultaneous occurrence, since 1979, of relatively stable exchange rates inside the ERM and instable rates outside to engage in a controlled experiment on the impact of the exchange rate regime on trade prices. The results suggest that a system of pegged rates like the EMS, although helpful, is not necessary to achieve a smooth process of trade adjustment. It appears that the absence of misalignment rather than the type of exchange rate regime is the crucial factor for fulfilling such an objective.

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Bibliographic Info

Paper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/8170.

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Date of creation: 1995
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Publication status: Published in: Journal of International Economics (1995) v.38 n° 1-2,p.75-94
Handle: RePEc:ulb:ulbeco:2013/8170

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  1. Beggs, Alan & Klemperer, Paul, 1990. "Multi-Period Competition with Switching Costs," CEPR Discussion Papers, C.E.P.R. Discussion Papers 436, C.E.P.R. Discussion Papers.
  2. Kasa, Kenneth, 1992. "Adjustment costs and pricing-to-market theory and evidence," Journal of International Economics, Elsevier, Elsevier, vol. 32(1-2), pages 1-30, February.
  3. 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.
  4. Kenen, Peter B & Rodrik, Dani, 1986. "Measuring and Analyzing the Effects of Short-term Volatility in Real Exchange Rates," The Review of Economics and Statistics, MIT Press, vol. 68(2), pages 311-15, May.
  5. Knetter, Michael M, 1989. "Price Discrimination by U.S. and German Exporters," American Economic Review, American Economic Association, American Economic Association, vol. 79(1), pages 198-210, March.
  6. Dixit, Avinash K, 1989. "Hysteresis, Import Penetration, and Exchange Rate Pass-Through," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 104(2), pages 205-28, May.
  7. Richard C. Marston, 1991. "Pricing to Market in Japanese Manufacturing," NBER Working Papers 2905, National Bureau of Economic Research, Inc.
  8. Kenneth A. Froot & Paul Klemperer, 1989. "Exchange Rate Pass-Through When Market Share Matters," NBER Working Papers 2542, National Bureau of Economic Research, Inc.
  9. Catherine L. Mann, 1986. "Prices, profit margins, and exchange rates," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), Board of Governors of the Federal Reserve System (U.S.), issue Jun, pages 366-379.
  10. Nirvikar Singh & Xavier Vives, 1984. "Price and Quantity Competition in a Differentiated Duopoly," RAND Journal of Economics, The RAND Corporation, vol. 15(4), pages 546-554, Winter.
  11. Mussa, Michael, 1986. "Nominal exchange rate regimes and the behavior of real exchange rates: Evidence and implications," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 25(1), pages 117-214, January.
  12. André Sapir & Khalid Sekkat, 1990. "Exchange rate volatility and international trade: the effects of the European monetary system," ULB Institutional Repository 2013/8228, ULB -- Universite Libre de Bruxelles.
  13. Robert Z. Lawrence, 1990. "U.S. Current Account Adjustment: An Appraisal," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(2), pages 343-392.
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Cited by:
  1. Eric Renault & Khalid Sekkat & Ariane Szafarz, 1998. "Testing for Spurious Causality in Exchange Rates," ULB Institutional Repository 2013/709, ULB -- Universite Libre de Bruxelles.
  2. Khalid Sekkat & Aristomene Varoudakis, 2000. "Exchange rate management and manufactured exports in Sub-Saharan Africa," ULB Institutional Repository 2013/7342, ULB -- Universite Libre de Bruxelles.
  3. Michel Fouquin & Nanno Mulder & Laurence Nayman & Khalid Sekkat & Joffrey Malek Mansour, 2001. "Sector Sensitivity to Exchange Rate Fluctuations," Working Papers 2001-11, CEPII research center.
  4. Irandoust, Manuchehr, 1998. "Pricing Policy in the Swedish Automobile Market," Journal of Economics and Business, Elsevier, Elsevier, vol. 50(3), pages 309-317, May.
  5. Lee, Jaewoo, 1998. "Intertemporal substitution in imported durables," Journal of International Economics, Elsevier, Elsevier, vol. 44(1), pages 113-133, February.
  6. Khalid Sekkat, 2001. "On the Aggregate Impact of Exchange Rate Variability on EU Trade," German Economic Review, Verein für Socialpolitik, Verein für Socialpolitik, vol. 2(1), pages 57-78, 02.
  7. Kallio, Panu K.S. & Abbott, Philip C., 1998. "Export Subsidies And Switching Costs In An Imperfectly Competitive International Wheat Market," 1998 Annual meeting, August 2-5, Salt Lake City, UT, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 20789, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  8. Lúcio Vinhas de Souza, 2002. "Trade Effects of Monetary Integration in Large, Mature Economies: A Primer on the European Monetary Union," Kiel Working Papers 1137, Kiel Institute for the World Economy.
  9. Ngongang, Elie, 2011. "Impact of Exchange Rate Policy on the Trade of Industrial Products in Sub-Saharan Africa from 1975 to 2007," Review of Applied Economics, Review of Applied Economics, Review of Applied Economics, vol. 7(1-2).

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