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Globalization, exports, and effective exchange rate indices

Author

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  • Ho, Lok Sang

Abstract

This paper offers a new way of compiling effective exchange rate indices, which is then shown to perform generally better in prototype equations explaining total real exports than other published indices. Researchers can use this method to compile effective exchange rates, real or nominal, readily for any country. The generally superior performance, based on cointegration tests using data from four major economies, four Latin American countries, and four South East Asian countries, suggests the proposed index which uses GDP weights rather than trade weights, is more appropriate in a highly globalized world. Intensified globalization in the past two decades appears indicated by the higher elasticities of exports with respect to the real effective exchange rate over time.

Suggested Citation

  • Ho, Lok Sang, 2012. "Globalization, exports, and effective exchange rate indices," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 996-1007.
  • Handle: RePEc:eee:jimfin:v:31:y:2012:i:5:p:996-1007
    DOI: 10.1016/j.jimonfin.2011.12.007
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    References listed on IDEAS

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    1. Menzie Chinn, 2006. "A Primer on Real Effective Exchange Rates: Determinants, Overvaluation, Trade Flows and Competitive Devaluation," Open Economies Review, Springer, vol. 17(1), pages 115-143, January.
    2. Thorbecke, Willem, 2011. "Investigating the effect of exchange rate changes on china's processed exports," Journal of the Japanese and International Economies, Elsevier, vol. 25(2), pages 33-46, June.
    3. K.C. Fung & LawrenceJ. Lau & Yanyan Xiong, 2006. "Adjusted Estimates Of United States-China Bilateral Trade Balances: An Update," Pacific Economic Review, Wiley Blackwell, vol. 11(3), pages 299-314, October.
    4. Lok Sang Ho, 2000. "Towards a New International Monetary Order: The World Currency Unit and the Global Indexed Bond," The World Economy, Wiley Blackwell, vol. 23(7), pages 939-950, July.
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    Citations

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    Cited by:

    1. Willem Thorbecke, 2015. "Measuring the Competitiveness of China's Processed Exports," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 23(1), pages 78-100, January.
    2. Campbell, Douglas L., 2016. "Measurement matters: Productivity-adjusted weighted average relative price indices," Journal of International Money and Finance, Elsevier, vol. 61(C), pages 45-81.
    3. Douglas L. Campbell, 2014. "Through the Looking Glass: A WARPed View of Real Exchange Rate History," Working Papers w0210, Center for Economic and Financial Research (CEFIR).
    4. Yoshino, Naoyuki & Kaji, Sahoko & Asonuma, Tamon, 2016. "Exchange rate regime switching in Malaysia and Singapore in response to China’s move to a basket peg: A DSGE analysis," Journal of Asian Economics, Elsevier, vol. 46(C), pages 17-37.

    More about this item

    Keywords

    Effective exchange rate indices; Real effective exchange rate indices; GDP-weighted effective exchange rates; Globalization; Estimated exports functions;

    JEL classification:

    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F30 - International Economics - - International Finance - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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