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The Changing Role of the Exchange Rate in a Globalised Economy

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  • Irina Bunda

    () (LEO - Laboratoire d'économie d'Orleans - UO - Université d'Orléans - CNRS - Centre National de la Recherche Scientifique)

Abstract

In addition to its direct effects on the global trading and production structure, the ongoing process of globalisation may have important implications for the interaction of exchange rates and the overall economy. This paper presents evidence regarding possible changes in the role of exchange rates in a more globalised economy. First, it analyses the link between exchange rates and prices, showing that there is at most a moderate decline in exchange rate pass-through for the euro area. Next, it turns to the effect of exchange rate changes on trade flows. The findings indicate that the responsiveness of euro area exports to exchange rate changes may have declined somewhat as a result of globalisation, reflecting mainly shifts in the geographical and sectoral composition of trade flows. The paper also provides a firm-level analysis of the impact of exchange rate changes on corporate profits, which suggests that overall this relationship appears to be relatively stable over time, although there are important cross-country differences. In addition, it studies the overall impact of exchange rates on GDP and the potential role of valuation effects as a transmission channel in the case of the euro area. JEL Classification: E3, F15, F31
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Suggested Citation

  • Irina Bunda, 2008. "The Changing Role of the Exchange Rate in a Globalised Economy," Post-Print halshs-00285807, HAL.
  • Handle: RePEc:hal:journl:halshs-00285807
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00285807
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    as
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    More about this item

    Keywords

    Changing; Role; Exchange; Rate; Globalised; Economy;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • F15 - International Economics - - Trade - - - Economic Integration
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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