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Global Trade Flows: Revisiting the Exchange Rate Elasticities

Author

Listed:
  • M. Bussière
  • G. Gaulier
  • W. Steingress

Abstract

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.

Suggested Citation

  • M. Bussière & G. Gaulier & W. Steingress, 2016. "Global Trade Flows: Revisiting the Exchange Rate Elasticities," Working papers 608, Banque de France.
  • Handle: RePEc:bfr:banfra:608
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    References listed on IDEAS

    as
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    Cited by:

    1. Gurnain Pasricha, 2017. "Policy Rules for Capital Controls," Staff Working Papers 17-42, Bank of Canada.
    2. Emine Boz & Gita Gopinath & Mikkel Plagborg-Møller, 2017. "Global Trade and the Dollar," NBER Working Papers 23988, National Bureau of Economic Research, Inc.
    3. Rose Cunningham & Christian Friedrich & Kristina Hess & Min Jae Kim, 2017. "Understanding the Time Variation in Exchange Rate Pass-Through to Import Prices," Discussion Papers 17-12, Bank of Canada.
    4. Daniel Leigh & Weicheng Lian & Marcos Poplawski-Ribeiro & Rachel Szymanski & Viktor Tsyrennikov & Hong Yang, 2017. "Exchange Rates and Trade; A Disconnect?," IMF Working Papers 17/58, International Monetary Fund.
    5. Krane, Spencer & Wascher, William, 1999. "The cyclical sensitivity of seasonality in U.S. employment," Journal of Monetary Economics, Elsevier, vol. 44(3), pages 523-553, December.
    6. Mikkel Plagborg-Moller & Gita Gopinath & Emine Boz, 2017. "Global Trade and the Dollar," 2017 Meeting Papers 1041, Society for Economic Dynamics.
    7. Emine Boz & Gita Gopinath & Mikkel Plagborg-Møller, 2017. "Global Trade and the Dollar," IMF Working Papers 17/239, International Monetary Fund.

    More about this item

    Keywords

    exchange rates; trade elasticities; exchange rate pass-through; competitiveness;

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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