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The Political Economy of Exchange Rates in an Era of Global Production Chains

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  • Patrick J. W. Egan

Abstract

Scholars have long recognized that exchange-rate movements affect different actors within societies in different ways. However, increasingly complex global production chains add complications to longstanding theoretic models of exchange-rate politics. I argue that imported intermediate inputs condition firm preferences regarding the level and stability of exchange-rates and directly test these arguments using firm survey responses in a variety of countries. I employ multilevel models to evaluate how imported input profiles of firms interact with real effective exchange-rate movements to influence firm assessments of macroeconomic constraints. Higher dependence on imported inputs is linked to increased dissatisfaction with depreciating currencies, contingent on various firm and country characteristics. The results highlight the multiple channels through which exchange-rate movements can now affect exporters, nonexporters, and nontradables.

Suggested Citation

  • Patrick J. W. Egan, 2017. "The Political Economy of Exchange Rates in an Era of Global Production Chains," International Interactions, Taylor & Francis Journals, vol. 43(3), pages 507-536, May.
  • Handle: RePEc:taf:ginixx:v:43:y:2017:i:3:p:507-536
    DOI: 10.1080/03050629.2016.1195565
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    References listed on IDEAS

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    1. Sophia Rabe-Hesketh & Anders Skrondal, 2012. "Multilevel and Longitudinal Modeling Using Stata, 3rd Edition," Stata Press books, StataCorp LP, edition 3, number mimus2, March.
    2. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 379-408.
    3. Zsolt Darvas, 2012. "Compositional effects on productivity, labour cost and export adjustments," Policy Contributions 730, Bruegel.
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    Cited by:

    1. Ryan M. Weldzius, 2021. "The end of currency manipulation? Global production networks and exchange rate outcomes," Economics and Politics, Wiley Blackwell, vol. 33(3), pages 514-532, November.

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