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Export dynamics in large devaluations

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Listed author(s):
  • 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.

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

  1. Ramanarayanan, Ananth, 2017. "Imported inputs, irreversibility, and international trade dynamics," Journal of International Economics, Elsevier, vol. 104(C), pages 1-18.
  2. David Kohn & Fernando Leibovici & Michal Szkup, 2015. "Financial Frictions and Export Dynamics in Large Devaluations," Department of Economics Working Papers 2015_2, Universidad Torcuato Di Tella.
  3. Naknoi, Kanda, 2015. "Exchange rate volatility and fluctuations in the extensive margin of trade," Journal of Economic Dynamics and Control, Elsevier, vol. 52(C), pages 322-339.
  4. Zhen Huo & Jose-Victor Rios-Rull, 2013. "Paradox of thrift recessions," Staff Report 490, Federal Reserve Bank of Minneapolis.
  5. 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.
  6. Schwartzman, Felipe, 2014. "Time to produce and emerging market crises," Journal of Monetary Economics, Elsevier, vol. 68(C), pages 37-52.
  7. 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.
  8. 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.
  9. Jose-Victor Rios-Rull & Zhen Huo, 2013. "Realistic neoclassical multiplier," Economic Policy Paper 13-5, Federal Reserve Bank of Minneapolis.
  10. Jonathan Kearns & Nikhil Patel, 2016. "Does the financial channel of exchange rates offset the trade channel?," BIS Quarterly Review, Bank for International Settlements, December.

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