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Trade Flows and Exchange Rates: Importers, Exporters and Products

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  • Michael Devereux
  • Wei Dong
  • Ben Tomlin

Abstract

Using highly disaggregated transaction-level trade data, we document the importance of new firm-level trade partner relationships and the addition of new products to existing relationships in driving aggregate trade flows. Moreover, we find that these margins are sensitive to movements in the exchange rate and that this relationship is stronger for larger firms. These findings are then rationalized in a model of international trade with endogenous matching between heterogeneous importers and exporters. Simulations of the model highlight: (1) a new channel through which exchange rates influence short-run trade flows; and (2) the importance of firm heterogeneity—on both sides of trade transactions—in the adjustment process.

Suggested Citation

  • Michael Devereux & Wei Dong & Ben Tomlin, 2019. "Trade Flows and Exchange Rates: Importers, Exporters and Products," Staff Working Papers 19-41, Bank of Canada.
    • Handle: RePEc:bca:bocawp:19-41
    DOI: 10.34989/swp-2019-41
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    Cited by:

    1. Cengiz Tunç & M. Nihat Solakoglu, 2025. "Exchange Rate Volatility and Firms’ Export Decisions: Evidence from Exporter Dynamics Database," Open Economies Review, Springer, vol. 36(2), pages 651-677, April.

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    JEL classification:

    • F1 - International Economics - - Trade
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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