IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

The Relationship between Exchange Rates and International Trade: A Literature Review

  • Marc Auboin
  • Michele Ruta

This paper surveys a wide body of economic literature on the relationship between currencies and trade. Specifically, two main issues are investigated: the impact on international trade of exchange rate volatility and of currency misalignments. On average, exchange rate volatility has a negative (even if not large) impact on trade flows. The extent of this effect depends on a number of factors, including the existence of hedging instruments, the structure of production (e.g. the prevalence of small firms), and the degree of economic integration across countries. The second issue involves exchange rate misalignments, which are predicted to have short-run effects in models with price rigidities. However, the exact impact depends on a number of features, such as the pricing strategy of firms engaging in international trade and the importance of global production networks. This effect is predicted to disappear in the long-run, unless some other distortion characterizes the economy. Empirical results confirm that short-run effects can exist, but their size and persistence over time are not consistent across different studies.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2012/wp-cesifo-2012-06/cesifo1_wp3868.pdf
Download Restriction: no

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3868.

as
in new window

Length:
Date of creation: 2012
Date of revision:
Handle: RePEc:ces:ceswps:_3868
Contact details of provider: Postal: Poschingerstrasse 5, 81679 Munich
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo.de
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Andrew B. Bernard & J. Bradford Jensen, 2004. "Entry, Expansion, and Intensity in the US Export Boom, 1987-1992," Review of International Economics, Wiley Blackwell, vol. 12(4), pages 662-675, 09.
  2. Nicolas Péridy, 2003. "Exchange rate volatility, sectoral trade, and the aggregation bias," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 139(3), pages 389-418, September.
  3. Andrew Berg & Yanliang Miao, 2010. "The Real Exchange Rate and Growth Revisited; The Washington Consensus Strikes Back?," IMF Working Papers 10/58, International Monetary Fund.
  4. Bahmani-Oskooee, Mohsen & Hegerty, Scott W., 2008. "Exchange-rate risk and U.S.-Japan trade: Evidence from industry level data," Journal of the Japanese and International Economies, Elsevier, vol. 22(4), pages 518-534, December.
  5. Silvana Tenreyro, 2003. "On the trade impact of nominal exchange rate volatility," Working Papers 03-2, Federal Reserve Bank of Boston.
  6. Soledad Zignago & Thierry Mayer, 2005. "Market Access in Global and Regional Trade," Sciences Po publications 2005-02, Sciences Po.
  7. Arpita Chatterjee & Rafael Dix-Carneiro & Jade Vichyanond, 2012. "Multi-Product Firms and Exchange Rate Fluctuations," Discussion Papers 2012-29, School of Economics, The University of New South Wales.
  8. Douglas A. Irwin, 2012. "The Nixon Shock after Forty Years: The Import Surcharge Revisited," NBER Working Papers 17749, National Bureau of Economic Research, Inc.
  9. Thierry Mayer & Philippe Martin & Nicolas Berman, 2010. "How do different exporters react to exchange rate changes? Theory, empirics and aggregate implications," 2010 Meeting Papers 1338, Society for Economic Dynamics.
  10. Arize, Augustine C & Osang, Thomas & Slottje, Daniel J, 2000. "Exchange-Rate Volatility and Foreign Trade: Evidence from Thirteen LDC's," Journal of Business & Economic Statistics, American Statistical Association, vol. 18(1), pages 10-17, January.
  11. Baldwin, Richard, 1988. "Hyteresis in Import Prices: The Beachhead Effect," American Economic Review, American Economic Association, vol. 78(4), pages 773-85, September.
  12. Bagwell, Kyle, 1992. "Pricing to Signal Product Line Quality," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(1), pages 151-74, Spring.
  13. Byrne, Joseph P. & Darby, Julia & MacDonald, Ronald, 2008. "US trade and exchange rate volatility: A real sectoral bilateral analysis," Journal of Macroeconomics, Elsevier, vol. 30(1), pages 238-259, March.
  14. Virginia Di Nino & Barry Eichengreen & Massimo Sbracia, 2011. "Real Exchange Rates, Trade, and Growth: Italy 1861-2011," Quaderni di storia economica (Economic History Working Papers) 10, Bank of Italy, Economic Research and International Relations Area.
  15. Santos Silva, J.M.C & Tenreyro, Silvana, 2010. "Currency Unions in Prospect and Retrospect," CEPR Discussion Papers 7824, C.E.P.R. Discussion Papers.
  16. Peter B. Clark, 1973. "Uncertainty, Exchange Risk, And The Level Of International Trade," Economic Inquiry, Western Economic Association International, vol. 11(3), pages 302-313, 09.
  17. Kyle Bagwell & R. Staiger, 1987. "The Role of Export Subsidies When Product Quality is Unknown," Discussion Papers 758, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  18. Chad Bown & Meredith Crowley, 2011. "Import protection, business cycles, and exchange rates: evidence from the Great Recession," Working Paper Series WP-2011-16, Federal Reserve Bank of Chicago.
  19. Caporale, Tony & Doroodian, Khosrow, 1994. "Exchange rate variability and the flow of international trade," Economics Letters, Elsevier, vol. 46(1), pages 49-54, September.
  20. Viaene, J-M. & De Vries, C.G., 1989. "International Trade And Exchange Rate Volatility," Papers 8905, Erasmus University of Rotterdam - Institute for Economic Research.
  21. Linda S. Goldberg & Cedric Tille, 2005. "Vehicle currency use in international trade," Staff Reports 200, Federal Reserve Bank of New York.
  22. Wang, Kai-Li & Barrett, Christopher B., 2007. "Estimating the Effects of Exchange Rate Volatility on Export Volumes," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 32(02), August.
  23. Laixun Zhao & Yuqing Xing, 2006. "Global Production and Currency Devaluation," Review of International Economics, Wiley Blackwell, vol. 14(2), pages 202-211, 05.
  24. Jaewoo Lee & Jonathan David Ostry & Alessandro Prati & Luca Antonio Ricci & Gian-Maria Milesi-Ferretti, 2008. "Exchange Rate Assessments; CGER Methodologies," IMF Occasional Papers 261, International Monetary Fund.
  25. Baron, David P, 1976. "Flexible Exchange Rates, Forward Markets, and the Level of Trade," American Economic Review, American Economic Association, vol. 66(3), pages 253-66, June.
  26. WenShwo Fang & YiHao Lai & Stephen M. Miller, 2006. "Export Promotion through Exchange Rate Changes: Exchange Rate Depreciation or Stabilization," Southern Economic Journal, Southern Economic Association, vol. 72(3), pages 611-626, January.
  27. Udo Broll & Jack E. Wahl & Wing-Keung Wong, 2005. "Elasticity of risk aversion and international trade," Monash Economics Working Papers 07/05, Monash University, Department of Economics.
  28. Shang-Jin Wei, 1998. "Currency Hedging and Goods Trade," NBER Working Papers 6742, National Bureau of Economic Research, Inc.
  29. Mustafa Caglayan & Jing Di, 2008. "Does Real Exchange Rate Volatility Affect Sectoral Trade Flows?," Working Papers 2008011, The University of Sheffield, Department of Economics, revised Sep 2008.
  30. Broz, J. Lawrence & Werfel, Seth H., 2014. "Exchange Rates and Industry Demands for Trade Protection," International Organization, Cambridge University Press, vol. 68(02), pages 393-416, March.
  31. Daria Taglioni, 2002. "Exchange Rate Volatility as a Barrier to Trade: New Methodologies and Recent Evidence," Economie Internationale, CEPII research center, issue 89-90, pages 227-259.
  32. Mona Haddad & Cosimo Pancaro, 2010. "Can Real Exchange Rate Undervaluation Boost Exports and Growth in Developing Countries? Yes, But Not for Long," World Bank Other Operational Studies 10178, The World Bank.
  33. Bruno Coric & Geoff Pugh, 2010. "The effects of exchange rate variability on international trade: a meta-regression analysis," Applied Economics, Taylor & Francis Journals, vol. 42(20), pages 2631-2644.
  34. Myint Moe Chit & Marian Rizov & Dirk Willenbockel, 2010. "Exchange Rate Volatility and Exports: New Empirical Evidence from the Emerging East Asian Economies," The World Economy, Wiley Blackwell, vol. 33(2), pages 239-263, 02.
  35. Wang, Kai-Li & Fawson, Chris & Barrett, Christopher B, 2002. " An Assessment of Empirical Model Performance When Financial Market Transactions Are Observed at Different Data Frequencies: An Application to East Asian Exchange Rates," Review of Quantitative Finance and Accounting, Springer, vol. 19(2), pages 111-29, September.
  36. Fischer, Stanley, 1993. "The role of macroeconomic factors in growth," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 485-512, December.
  37. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-38, June.
  38. Cushman, David O., 1983. "The effects of real exchange rate risk on international trade," Journal of International Economics, Elsevier, vol. 15(1-2), pages 45-63, August.
  39. Ozturk, 2006. "Exchange Rate Volatility and Trade: A Literature Survey," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 3(1), pages 85-102.
  40. Guedae Cho & Ian M. Sheldon & Steve McCorriston, 2002. "Exchange Rate Uncertainty and Agricultural Trade," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(4), pages 931-942.
  41. Michael M. Knetter & Thomas J. Prusa, 2000. "Macroeconomic Factors and Antidumping Filings: Evidence from Four Countries," NBER Working Papers 8010, National Bureau of Economic Research, Inc.
  42. Rahman, Sajjadur & Serletis, Apostolos, 2009. "The effects of exchange rate uncertainty on exports," Journal of Macroeconomics, Elsevier, vol. 31(3), pages 500-507, September.
  43. George Hondroyiannis & P.A.V.B. Swamy & George S. Tavlas & Michael Ulan, 2005. "Some Further Evidence on Exchange-Rate Volatility and Exports," Working Papers 28, Bank of Greece.
  44. Philippe BACCHETTA & Eric VAN WINCOOP, 1999. "Does Exchange Rate Stability Increase Trade and Welfare ?," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9917, Université de Lausanne, Faculté des HEC, DEEP.
  45. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
  46. Andrew K. Rose & Eric van Wincoop, 2001. "National Money as a Barrier to International Trade: The Real Case for Currency Union," American Economic Review, American Economic Association, vol. 91(2), pages 386-390, May.
  47. Richard Baldwin & Paul R. Krugman, 1986. "Persistent Trade Effects of Large Exchage Rate Shocks," NBER Working Papers 2017, National Bureau of Economic Research, Inc.
  48. Arslan, Ismail & van Wijnbergen, Sweder, 1993. "Export Incentives, Exchange Rate Policy and Export Growth in Turkey," The Review of Economics and Statistics, MIT Press, vol. 75(1), pages 128-33, February.
  49. Rodrik, Dani, 1986. "Disequilibrium exchange rates as industrialization policy," Journal of Development Economics, Elsevier, vol. 23(1), pages 89-106, September.
  50. Ilhan Ozturk & Huseyin Kalyoncu, 2009. "Exchange Rate Volatility and Trade: An Empirical Investigation from Cross-country Comparison," African Development Review, African Development Bank, vol. 21(3), pages 499-513.
  51. P�l Boug & Andreas Fagereng, 2007. "Exchange rate volatility and export performance: A cointegrated VAR approach," Discussion Papers 522, Statistics Norway, Research Department.
  52. Klein, Michael W. & Shambaugh, Jay C., 2006. "Fixed exchange rates and trade," Journal of International Economics, Elsevier, vol. 70(2), pages 359-383, December.
  53. Franke, Gunter, 1991. "Exchange rate volatility and international trading strategy," Journal of International Money and Finance, Elsevier, vol. 10(2), pages 292-307, June.
  54. Udo Broll & Bernhard Eckwert, 1999. "Exchange Rate Volatility and International Trade," Southern Economic Journal, Southern Economic Association, vol. 66(1), pages 178-185, July.
  55. Paul Krugman, 1986. "Pricing to Market when the Exchange Rate Changes," NBER Working Papers 1926, National Bureau of Economic Research, Inc.
  56. Heiwai Tang & Yifan Zhang, 2012. "Exchange Rates and the Margins of Trade: Evidence from Chinese Exporters," CESifo Economic Studies, CESifo, vol. 58(4), pages 671-702, December.
  57. Korinek, Anton & Serven, Luis, 2010. "Undervaluation through foreign reserve accumulation : static losses, dynamic gains," Policy Research Working Paper Series 5250, The World Bank.
  58. Christopher F. Baum & Mustafa Caglayan, 2006. "On the Sensitivity of the Volume and Volatility of Bilateral Trade Flows to Exchange Rate Uncertainty," Boston College Working Papers in Economics 641, Boston College Department of Economics, revised 06 Feb 2008.
  59. Giovannini, Alberto, 1988. "Exchange rates and traded goods prices," Journal of International Economics, Elsevier, vol. 24(1-2), pages 45-68, February.
  60. Paulo Gala, 2008. "Real exchange rate levels and economic development: theoretical analysis and econometric evidence," Cambridge Journal of Economics, Oxford University Press, vol. 32(2), pages 273-288, March.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_3868. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.