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A Short-Run Analysis of Exchange Rates and International Trade with an Application to Australia, New Zealand, and Japan

Author

Listed:
  • José Anson

    (Asian Development Bank Institute (ADBI))

  • Mauro Boffa
  • Matthias Helble

Abstract

The information and communication technology (ICT) revolution of the past 3 decades has transformed the world into an integrated marketplace. Today, producers and consumers alike are able to compare the prices of local businesses and worldwide sellers. For an increasing number of tradable goods, they can take advantage of arbitrage opportunities between online and offline transactions. One of the key exogenous elements behind this arbitrage is exchange rate movements. The existing literature on exchange rates has concluded that nominal prices can be assumed to be rigid, which thus opens the door to short-term international arbitrage. However, empirical evidence of international short-term arbitrage has so far been lacking due to data constraints. In this paper, we first present a new dataset that holds records on daily international exchanges of goods, namely those sent through the international postal logistics network. We then combine this data set with daily data on international exchange rate movements to test the hypothesis of international arbitrage. Applying different econometric techniques, we show that in an environment of floating exchange rates, almost instantaneous short-term international arbitrage is indeed occurring and that it has a persistent effect. The effect seems to be particularly pronounced in the developed countries of Asia and the Pacific.

Suggested Citation

  • José Anson & Mauro Boffa & Matthias Helble, 2014. "A Short-Run Analysis of Exchange Rates and International Trade with an Application to Australia, New Zealand, and Japan," Macroeconomics Working Papers 24048, East Asian Bureau of Economic Research.
  • Handle: RePEc:eab:macroe:24048
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    References listed on IDEAS

    as
    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.
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    5. 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.).
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    14. José Ansón & Matthias Helble, 2013. "A gravity model of international postal exchanges," Chapters,in: Reforming the Postal Sector in the Face of Electronic Competition, chapter 3, pages 36-47 Edward Elgar Publishing.
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    exchange rate; international trade; Australia; New Zealand; Japan; international arbitrage;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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