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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.), revised 2013.
    • Handle: RePEc:fip:fedgif:1087
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    References listed on IDEAS

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Export Dynamics in Large Devaluations
      by Christian Zimmermann in NEP-DGE blog on 2013-06-09 05:48:43

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    Cited by:

    1. Leibovici, Fernando & Waugh, Michael E., 2019. "International trade and intertemporal substitution," Journal of International Economics, Elsevier, vol. 117(C), pages 158-174.
    2. Alessandria, George & Choi, Horag, 2014. "Establishment heterogeneity, exporter dynamics, and the effects of trade liberalization," Journal of International Economics, Elsevier, vol. 94(2), pages 207-223.
    3. Felipe Schwartzman, 2010. "Time to produce and emerging market crises," Working Paper 10-15, Federal Reserve Bank of Richmond, revised 2010.
    4. Ramanarayanan, Ananth, 2017. "Imported inputs, irreversibility, and international trade dynamics," Journal of International Economics, Elsevier, vol. 104(C), pages 1-18.
    5. Kohn, David & Leibovici, Fernando & Szkup, Michal, 2020. "Financial frictions and export dynamics in large devaluations," Journal of International Economics, Elsevier, vol. 122(C).
    6. Felipe Benguria & Felipe Saffie & Sergio Urzúa, 2018. "The Transmission of Commodity Price Super-Cycles," NBER Working Papers 24560, National Bureau of Economic Research, Inc.
    7. Ben Zeev, Nadav, 2019. "Global credit supply shocks and exchange rate regimes," Journal of International Economics, Elsevier, vol. 116(C), pages 1-32.
    8. Joaquin Blaum, 2018. "Global Firms in Large Devaluations," 2018 Meeting Papers 593, Society for Economic Dynamics.
    9. Finkelstein Shapiro, Alan & Mandelman, Federico S., 2016. "Remittances, entrepreneurship, and employment dynamics over the business cycle," Journal of International Economics, Elsevier, vol. 103(C), pages 184-199.
    10. Zhen Huo & Jose-Victor Rios-Rull, 2013. "Paradox of thrift recessions," Staff Report 490, Federal Reserve Bank of Minneapolis.
    11. Jonathan Kearns & Nikhil Patel, 2016. "Does the financial channel of exchange rates offset the trade channel?," BIS Quarterly Review, Bank for International Settlements, December.
    12. Zhen Huo & Jose-Victor Rios-Rull, 2013. "Realistic neoclassical multiplier," Economic Policy Paper 13-5, Federal Reserve Bank of Minneapolis.
    13. Zhen Huo & Jose-Victor Rios-Rull, . "Demand Induced Fluctuations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
    14. Sandile Hlatshwayo & Magnus Saxegaard, 2016. "The Consequences of Policy Uncertainty; Disconnects and Dilutions in the South African Real Effective Exchange Rate-Export Relationship," IMF Working Papers 16/113, International Monetary Fund.
    15. Schwartzman, Felipe, 2014. "Time to produce and emerging market crises," Journal of Monetary Economics, Elsevier, vol. 68(C), pages 37-52.

    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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