IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/8654.html
   My bibliography  Save this paper

On the Distribution of Exchange Rate Regime Treatment Effects on International Trade

Author

Listed:
  • Dorn, Sabrina
  • Egger, Peter

Abstract

This paper provides evidence of heterogeneous treatment effects on trade from switching among three types of de-facto exchange rate regimes: freely floating, currency bands, and pegs or currency unions. A cottage literature at the interface of macroeconomics and international economics focuses on the consequences of exchange rate regimes for economic outcome such as trade. The majority of contributions points to trade-stimulating average effects of tighter exchange rate tying in general and of currency unions in specific. While there is great variability of the estimated quantitative effects across studies, all of the associated work adopted at least two and most of it all of the following three assumptions: assignment of countries to exchange rate regimes is random, the treatment effect of adopting a currency union is independent of the underlying regime transition, and it is homogeneous and hence fully captured by the average. This paper allows for self-selection into exchange rate regimes conditional on observable characteristics and a given regime state prior to a transition and provides evidence of strong impact heterogeneity on bilateral trade among otherwise observationally equivalent country-pairs.

Suggested Citation

  • Dorn, Sabrina & Egger, Peter, 2011. "On the Distribution of Exchange Rate Regime Treatment Effects on International Trade," CEPR Discussion Papers 8654, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:8654
    as

    Download full text from publisher

    File URL: http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=8654
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hsiao, C. & Pesaran, M.H., 2004. "‘Random Coefficient Panel Data Models’," Cambridge Working Papers in Economics 0434, Faculty of Economics, University of Cambridge.
    2. Glick, Reuven & Rose, Andrew K., 2002. "Does a currency union affect trade? The time-series evidence," European Economic Review, Elsevier, vol. 46(6), pages 1125-1151, June.
    3. Frankel, Jeffrey A & Rose, Andrew K, 1998. "The Endogeneity of the Optimum Currency Area Criteria," Economic Journal, Royal Economic Society, vol. 108(449), pages 1009-1025, July.
    4. Christopher M. Meissner, 2003. "Exchange-Rate Regimes and International Trade: Evidence from the Classical Gold Standard Era," American Economic Review, American Economic Association, vol. 93(1), pages 344-353, March.
    5. Robert Barro & Silvana Tenreyro, 2007. "Economic Effects Of Currency Unions," Economic Inquiry, Western Economic Association International, vol. 45(1), pages 1-23, January.
    6. Reinhart, Carmen, 2002. "A Modern History of Exchange Rate Arrangements: The Country Histories, 1946-2001," MPRA Paper 13191, University Library of Munich, Germany.
    7. Chib, Siddhartha, 2001. "Markov chain Monte Carlo methods: computation and inference," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 57, pages 3569-3649, Elsevier.
    8. Rose, Andrew K & Engel, Charles, 2002. "Currency Unions and International Integration," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(4), pages 1067-1089, November.
    9. Flood, Robert P. & Rose, Andrew K., 1995. "Fixing exchange rates A virtual quest for fundamentals," Journal of Monetary Economics, Elsevier, vol. 36(1), pages 3-37, August.
    10. James J. Heckman & Hidehiko Ichimura & Petra E. Todd, 1997. "Matching As An Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," Review of Economic Studies, Oxford University Press, vol. 64(4), pages 605-654.
    11. Jianqing Fan & Theo Gasser & Irène Gijbels & Michael Brockmann & Joachim Engel, 1997. "Local Polynomial Regression: Optimal Kernels and Asymptotic Minimax Efficiency," Annals of the Institute of Statistical Mathematics, Springer;The Institute of Statistical Mathematics, vol. 49(1), pages 79-99, March.
    12. di Giovanni, Julian & Shambaugh, Jay C., 2008. "The impact of foreign interest rates on the economy: The role of the exchange rate regime," Journal of International Economics, Elsevier, vol. 74(2), pages 341-361, March.
    13. Abbring, Jaap H. & Heckman, James J., 2007. "Econometric Evaluation of Social Programs, Part III: Distributional Treatment Effects, Dynamic Treatment Effects, Dynamic Discrete Choice, and General Equilibrium Policy Evaluation," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 6, chapter 72, Elsevier.
    14. Pagan,Adrian & Ullah,Aman, 1999. "Nonparametric Econometrics," Cambridge Books, Cambridge University Press, number 9780521355643, July.
    15. Richard Blundell & Monica Costa Dias, 2009. "Alternative Approaches to Evaluation in Empirical Microeconomics," Journal of Human Resources, University of Wisconsin Press, vol. 44(3).
    16. Ricardo Hausmann & Michael Gavin & Carmen Pagés-Serra & Ernesto H. Stein, 1999. "Financial Turmoil and Choice of Exchange Rate Regime," Research Department Publications 4170, Inter-American Development Bank, Research Department.
    17. Miss Grace Juhn & Mr. Paolo Mauro, 2002. "Long-Run Determinants of Exchange Rate Regimes: A Simple Sensitivity Analysis," IMF Working Papers 2002/104, International Monetary Fund.
    18. William J. Zeile, 2003. "Trade in Goods Within Multinational Companies: Survey-Based Data and Findings for the United States of America," BEA Papers 0033, Bureau of Economic Analysis.
    19. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 1-48.
    20. Russ, Katheryn, 2004. "The Endogeneity of the Exchange Rate as a Determinant of FDI: A Model of Money, Entry, and Multinational Firms," Santa Cruz Department of Economics, Working Paper Series qt9xr4f238, Department of Economics, UC Santa Cruz.
    21. Klein, Michael W., 2005. "Dollarization and trade," Journal of International Money and Finance, Elsevier, vol. 24(6), pages 935-943, October.
    22. Alberto Alesina & Robert J. Barro, 2002. "Currency Unions," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 409-436.
    23. Russ, Katheryn Niles, 2007. "The endogeneity of the exchange rate as a determinant of FDI: A model of entry and multinational firms," Journal of International Economics, Elsevier, vol. 71(2), pages 344-372, April.
    24. Buchinsky, Moshe, 1994. "Changes in the U.S. Wage Structure 1963-1987: Application of Quantile Regression," Econometrica, Econometric Society, vol. 62(2), pages 405-458, March.
    25. Klein, Michael W., 1990. "Sectoral effects of exchange rate volatility on United States exports," Journal of International Money and Finance, Elsevier, vol. 9(3), pages 299-308, September.
    26. Dorn, Sabrina & Egger, Peter H., 2013. "Fixed currency regimes and the time pattern of trade effects," Economics Letters, Elsevier, vol. 119(2), pages 120-123.
    27. Michael Lechner, 2004. "Sequential Matching Estimation of Dynamic Causal Models," University of St. Gallen Department of Economics working paper series 2004 2004-06, Department of Economics, University of St. Gallen.
    28. James J. Heckman & Jeffrey Smith & Nancy Clements, 1997. "Making The Most Out Of Programme Evaluations and Social Experiments: Accounting For Heterogeneity in Programme Impacts," Review of Economic Studies, Oxford University Press, vol. 64(4), pages 487-535.
    29. Lee, Myoung-jae, 2005. "Micro-Econometrics for Policy, Program and Treatment Effects," OUP Catalogue, Oxford University Press, number 9780199267699.
    30. Härdle,Wolfgang, 1992. "Applied Nonparametric Regression," Cambridge Books, Cambridge University Press, number 9780521429504, July.
    31. 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.
    32. Josef C. Brada & José A. Méndez, 1988. "Exchange Rate Risk, Exchange Rate Regime and the Volume of International Trade," Kyklos, Wiley Blackwell, vol. 41(2), pages 263-280, May.
    33. Racine, Jeffrey S., 2008. "Nonparametric Econometrics: A Primer," Foundations and Trends(R) in Econometrics, now publishers, vol. 3(1), pages 1-88, March.
    34. Wooldridge, Jeffrey M., 1995. "Selection corrections for panel data models under conditional mean independence assumptions," Journal of Econometrics, Elsevier, vol. 68(1), pages 115-132, July.
    35. Rajeev H. Dehejia & Sadek Wahba, 2002. "Propensity Score-Matching Methods For Nonexperimental Causal Studies," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 151-161, February.
    36. repec:adr:anecst:y:2008:i:91-92:p:10 is not listed on IDEAS
    37. Klein, Michael W. & Shambaugh, Jay C., 2006. "Fixed exchange rates and trade," Journal of International Economics, Elsevier, vol. 70(2), pages 359-383, December.
    38. Yeyati, Eduardo Levy, 2003. "On the impact of a common currency on bilateral trade," Economics Letters, Elsevier, vol. 79(1), pages 125-129, April.
    39. Bergstrand, Jeffrey H. & Egger, Peter, 2013. "What determines BITs?," Journal of International Economics, Elsevier, vol. 90(1), pages 107-122.
    40. Jose C. Galdo & Jeffrey Smith & Dan Black, 2008. "Bandwidth Selection and the Estimation of Treatment Effects with Unbalanced Data," Annals of Economics and Statistics, GENES, issue 91-92, pages 189-216.
    41. James J. Heckman & Hidehiko Ichimura & Petra Todd, 1998. "Matching As An Econometric Evaluation Estimator," Review of Economic Studies, Oxford University Press, vol. 65(2), pages 261-294.
    42. Fan, Yanqin & Park, Sang Soo, 2010. "Sharp Bounds On The Distribution Of Treatment Effects And Their Statistical Inference," Econometric Theory, Cambridge University Press, vol. 26(3), pages 931-951, June.
    43. 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.
    44. Brada, Josef C & Mendez, Jose, 1988. "Exchange Rate Risk, Exchange Rate Regime and the Volume of International Trade," Kyklos, Wiley Blackwell, vol. 41(2), pages 263-280.
    45. Ricardo Hausmann & Michael Gavin & Carmen Pagés & Ernesto H. Stein, 1999. "Financial Turmoil and the Choice of Exchange Rate Regime," IDB Publications (Working Papers) 4128, Inter-American Development Bank.
    46. Egger, Peter, 2008. "De Facto exchange rate arrangement tightness and bilateral trade flows," Economics Letters, Elsevier, vol. 99(2), pages 228-232, May.
    47. repec:hrv:faseco:34721963 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Campbell, Douglas L., 2011. "Estimating the impact of currency unions on trade using a dynamic gravity framework," MPRA Paper 35531, University Library of Munich, Germany.
    2. Hou, Jia & Knaze, Jakub, 2019. "The Effect of Exchange Rate Regimes on Business Cycle Synchronization: A Robust Analysis," MPRA Paper 95182, University Library of Munich, Germany.
    3. Cushman, David O. & De Vita, Glauco, 2017. "Exchange rate regimes and FDI in developing countries: A propensity score matching approach," Journal of International Money and Finance, Elsevier, vol. 77(C), pages 143-163.
    4. Egger Peter & Wamser Georg, 2013. "Effects of the Endogenous Scope of Preferentialism on International Goods Trade," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(2), pages 709-731, July.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Klein, Michael W. & Shambaugh, Jay C., 2006. "Fixed exchange rates and trade," Journal of International Economics, Elsevier, vol. 70(2), pages 359-383, December.
    2. Alberto Alesina & Robert J. Barro & Silvana Tenreyro, 2003. "Optimal Currency Areas," NBER Chapters, in: NBER Macroeconomics Annual 2002, Volume 17, pages 301-356, National Bureau of Economic Research, Inc.
    3. Guido W. Imbens & Jeffrey M. Wooldridge, 2009. "Recent Developments in the Econometrics of Program Evaluation," Journal of Economic Literature, American Economic Association, vol. 47(1), pages 5-86, March.
    4. Jong-Wha Lee & Kwanho Shin, 2010. "Exchange Rate Regimes and Economic Linkages," International Economic Journal, Taylor & Francis Journals, vol. 24(1), pages 1-23.
    5. di Giovanni, Julian & Shambaugh, Jay C., 2008. "The impact of foreign interest rates on the economy: The role of the exchange rate regime," Journal of International Economics, Elsevier, vol. 74(2), pages 341-361, March.
    6. Levy Yeyati, Eduardo & Sturzenegger, Federico & Reggio, Iliana, 2010. "On the endogeneity of exchange rate regimes," European Economic Review, Elsevier, vol. 54(5), pages 659-677, July.
    7. Pomfret, Richard, 2005. "Sequencing trade and monetary integration: issues and application to Asia," Journal of Asian Economics, Elsevier, vol. 16(1), pages 105-124, February.
    8. Cushman, David O. & De Vita, Glauco, 2017. "Exchange rate regimes and FDI in developing countries: A propensity score matching approach," Journal of International Money and Finance, Elsevier, vol. 77(C), pages 143-163.
    9. Sergio Nardis & Claudio Vicarelli, 2003. "Currency unions and trade: The special case of EMU," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 139(4), pages 625-649, December.
    10. Levy Yeyati, Eduardo & Sturzenegger, Federico, 2010. "Monetary and Exchange Rate Policies," Handbook of Development Economics, in: Dani Rodrik & Mark Rosenzweig (ed.), Handbook of Development Economics, edition 1, volume 5, chapter 0, pages 4215-4281, Elsevier.
    11. Tomáš Havránek, 2009. "Rose Effect and the Euro: The Magic is Gone," Working Papers IES 2009/20, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Aug 2009.
    12. Gil-Pareja, Salvador & Llorca-Vivero, Rafael & Martínez-Serrano, José Antonio, 2008. "Trade effects of monetary agreements: Evidence for OECD countries," European Economic Review, Elsevier, vol. 52(4), pages 733-755, May.
    13. James Yetman, 2007. "Currency Unions, Trade Flows And Capital Flows," Pacific Economic Review, Wiley Blackwell, vol. 12(2), pages 189-204, May.
    14. Tomáš Havránek, 2010. "Rose effect and the euro: is the magic gone?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 146(2), pages 241-261, June.
    15. Lin, Shu & Ye, Haichun, 2010. "Dollarization does promote trade," Journal of International Money and Finance, Elsevier, vol. 29(6), pages 1124-1130, October.
    16. Jones A.M & Rice N, 2009. "Econometric Evaluation of Health Policies," Health, Econometrics and Data Group (HEDG) Working Papers 09/09, HEDG, c/o Department of Economics, University of York.
    17. Tenreyro, Silvana, 2007. "On the trade impact of nominal exchange rate volatility," Journal of Development Economics, Elsevier, vol. 82(2), pages 485-508, March.
    18. J.M.C. Santos Silva & Silvana Tenreyro, 2010. "Currency Unions in Prospect and Retrospect," Annual Review of Economics, Annual Reviews, vol. 2(1), pages 51-74, September.
    19. Sebastian Edwards & I. Igal Magendzo, 2003. "Dollarization and economic performance: What do we really know?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 8(4), pages 351-363.
    20. Sergey Drobyshevsky & Dmitri Polevoy, 2004. "Problems Associated with Creation of a Single Currency Zone in the CIS Countries," Research Paper Series, Gaidar Institute for Economic Policy, issue 80P, pages 110-110.

    More about this item

    Keywords

    Endogenous treatment effects; Exchange rate regimes; Heterogeneous treatment effects;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:8654. 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: . General contact details of provider: https://www.cepr.org .

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (email available below). General contact details of provider: https://www.cepr.org .

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.