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Export dynamics in large devaluations

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  • George Alessandria
  • Sangeeta Pratap
  • Vivian Z. Yue

Abstract

We study the source and consequences of sluggish export dynamics in emerging markets following large devaluations. We document two main features of exports that are puzzling for standard trade models. First, given the change in relative prices, exports tend to grow gradually following a devaluation. Second, high interest rates tend to suppress exports. To address these features of export dynamics, we embed a model of endogenous export participation due to sunk and per period export costs into an otherwise standard small open economy. In response to shocks to productivity, the interest rate, and the discount factor, we find the model can capture the salient features of export dynamics documented. At the aggregate level, the features giving rise to sluggish exports lead to more gradual net export reversals, sharper contractions and recoveries in output, and endogenous stagnation in labor productivity.

Suggested Citation

  • George Alessandria & Sangeeta Pratap & Vivian Z. Yue, 2013. "Export dynamics in large devaluations," International Finance Discussion Papers 1087, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgif:1087
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    1. Export Dynamics in Large Devaluations
      by Christian Zimmermann in NEP-DGE blog on 2013-06-09 05:48:43

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    6. Ramanarayanan, Ananth, 2017. "Imported inputs, irreversibility, and international trade dynamics," Journal of International Economics, Elsevier, vol. 104(C), pages 1-18.
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    14. Carter Mix, 2020. "Technology, Geography, and Trade over Time: The Dynamic Effects of Changing Trade Policy," International Finance Discussion Papers 1304, Board of Governors of the Federal Reserve System (U.S.).
    15. Mr. Alexander Culiuc, 2020. "Real Exchange Rate Overshooting in Large Depreciations: Determinants and Consequences," IMF Working Papers 2020/060, International Monetary Fund.
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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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