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Export dynamics in large devaluations

Author Info

  • George Alessandria
  • Sangeeta Pratap
  • Vivian 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.

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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 1087.

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Date of creation: 2013
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Handle: RePEc:fip:fedgif:1087
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Find related papers by 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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Blog mentions

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 00:48:43
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Cited by:

  1. Jose-Victor Rios-Rull & Zhen Huo, 2013. "Realistic neoclassical multiplier," Economic Policy Paper 13-5, Federal Reserve Bank of Minneapolis.
  2. Zhen Huo & Jose-Victor Rios-Rull, 2013. "Paradox of thrift recessions," Staff Report 490, Federal Reserve Bank of Minneapolis.
  3. Felipe Schwartzman, 2010. "Time to produce and emerging market crises," Working Paper 10-15, Federal Reserve Bank of Richmond.
  4. Cooke, Dudley, 2014. "Monetary shocks, exchange rates, and the extensive margin of exports," Journal of International Money and Finance, Elsevier, vol. 41(C), pages 128-145.

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