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Global Trade Flows: Revisiting the Exchange Rate Elasticities

Listed author(s):
  • M. Bussière
  • G. Gaulier
  • W. Steingress

This paper contributes to the debate on exchange rate elasticities by providing a set of price and quantity elasticities for 51 advanced and emerging market economies. Specifically, we report for each of these countries the elasticity of trade prices and trade quantities on the export and on the import side, as well as the reaction of the trade balance. To this aim, the paper uses a large database of highly disaggregated bilateral trade flows, covering 5000 products and more than 160 trading partners. We present a range of estimates using standard regression techniques combined with generated repressors that aim to address key omitted variable biases, relating in particular to unobserved marginal costs and competitor prices in the importing market. We also subject our results to a battery of robustness checks that leave the main findings broadly unchanged. Overall, all countries in our sample satisfy the Marshall-Lerner conditions, suggesting that exchange rate changes can play an important role in addressing global trade imbalances.

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File URL: https://publications.banque-france.fr/sites/default/files/medias/documents/working-paper_608_2016.pdf
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Paper provided by Banque de France in its series Working papers with number 608.

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Length: 49 pages
Date of creation: 2016
Handle: RePEc:bfr:banfra:608
Contact details of provider: Postal:
Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS

Web page: http://www.banque-france.fr/

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  1. Corsetti, Giancarlo & Dedola, Luca, 2005. "A macroeconomic model of international price discrimination," Journal of International Economics, Elsevier, vol. 67(1), pages 129-155, September.
  2. Kim J. Ruhl, 2008. "The International Elasticity Puzzle," Working Papers 08-30, New York University, Leonard N. Stern School of Business, Department of Economics.
  3. Giancarlo Corsetti & Luca Dedola & Sylvain Leduc, 2007. "Optimal Monetary Policy and the Sources of Local-Currency Price Stability," NBER Chapters,in: International Dimensions of Monetary Policy, pages 319-367 National Bureau of Economic Research, Inc.
  4. Jose Manuel Campa & Linda S. Goldberg, 2001. "Employment Versus Wage Adjustment And The U.S. Dollar," The Review of Economics and Statistics, MIT Press, vol. 83(3), pages 477-489, August.
  5. Haroon Mumtaz & Özlem Oomen & Jian Wang, 2006. "Exchange rate pass-through into UK import prices," Bank of England working papers 312, Bank of England.
  6. Knetter, Michael M, 1989. "Price Discrimination by U.S. and German Exporters," American Economic Review, American Economic Association, vol. 79(1), pages 198-210, March.
  7. Auer, Raphael A. & Schoenle, Raphael S., 2016. "Market structure and exchange rate pass-through," Journal of International Economics, Elsevier, vol. 98(C), pages 60-77.
  8. Paul Krugman, 1986. "Pricing to Market when the Exchange Rate Changes," NBER Working Papers 1926, National Bureau of Economic Research, Inc.
  9. Matthieu Bussière & Simona Delle Chiaie & Tuomas A Peltonen, 2014. "Exchange Rate Pass-Through in the Global Economy: The Role of Emerging Market Economies," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 62(1), pages 146-178, April.
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  11. Matthieu Bussiere, 2013. "Exchange Rate Pass-through to Trade Prices: The Role of Nonlinearities and Asymmetries," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 75(5), pages 731-758, October.
  12. Gaulier, Guillaume & Zignago, Soledad, 2004. "Notes on BACI (analytical database of international trade). 1989-2002 version," MPRA Paper 32401, University Library of Munich, Germany.
  13. Prachi Mishra & Antonio Spilimbergo, 2011. "Exchange Rates and Wages in an Integrated World," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(4), pages 53-84, October.
  14. Jane E. Ihrig & Mario Marazzi & Alexander D. Rothenberg, 2006. "Exchange-rate pass-through in the G-7 countries," International Finance Discussion Papers 851, Board of Governors of the Federal Reserve System (U.S.).
  15. Michael B. Devereux & Ben Tomlin & Wei Dong, 2015. "Exchange Rate Pass-Through, Currency of Invoicing and Market Share," NBER Working Papers 21413, National Bureau of Economic Research, Inc.
  16. Guillaume Gaulier & Amina Lahrèche-Révil & Isabelle Méjean, 2008. "Exchange-rate pass-through at the product level," Canadian Journal of Economics, Canadian Economics Association, vol. 41(2), pages 425-449, May.
  17. Ossa, Ralph, 2015. "Why trade matters after all," Journal of International Economics, Elsevier, vol. 97(2), pages 266-277.
  18. Schmalensee, Richard & Joskow, Paul L., 1986. "Estimated parameters as independent variables : An application to the costs of electric generating units," Journal of Econometrics, Elsevier, vol. 31(3), pages 275-305, April.
  19. Gita Gopinath, 2015. "The International Price System," NBER Working Papers 21646, National Bureau of Economic Research, Inc.
  20. Nicolas Berman & Philippe Martin & Thierry Mayer, 2012. "How do Different Exporters React to Exchange Rate Changes?," The Quarterly Journal of Economics, Oxford University Press, vol. 127(1), pages 437-492.
  21. Giancarlo Corsetti & Luca Dedola, 2002. "Macroeconomics of international price discrimination," International Finance Discussion Papers 744, Board of Governors of the Federal Reserve System (U.S.).
  22. Pagan, Adrian, 1984. "Econometric Issues in the Analysis of Regressions with Generated Regressors," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 25(1), pages 221-247, February.
  23. repec:hrv:faseco:30780147 is not listed on IDEAS
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