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

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.