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Export Dynamics in Large Devaluations

Listed author(s):
  • George Alessandria

    (Federal Reserve Bank of Philadelphia)

  • Sangeeta Pratap

    (City University of New York)

  • Vivian Yue

    (Federal Reserve Board of Governors and Hong Kong Institute for Monetary Research)

This paper studies 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, interest rates, 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 export dynamics leading to more gradual net export dynamics, sharper contractions in output, and endogenous declines in labor productivity

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Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 062013.

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Length: 48 pages
Date of creation: May 2013
Handle: RePEc:hkm:wpaper:062013
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