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Exchange Rate Regimes, Specialization and Trave Volume

  • Michael B. Devereux

    (University of British Columbia)

  • Graham M. Voss

    (University of Victoria)

We develop a general equilibrium monetary model of endogenous specialization and international trade to examine the degree of specialization and trade volume under alternative exchange rate regimes. Where demand shocks are important, we demonstrate an increase in specialization, trade and welfare under coordinated fixed exchange rates, equivalent to a common currency, relative to flexible exchange rates. Where supply shocks are important, the effects on specialization and trade are smaller and ambiguous in direction, though the welfare effects are comparable to those for demand shocks.

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Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 222004.

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Length: 27 pages
Date of creation: Nov 2004
Date of revision:
Handle: RePEc:hkm:wpaper:222004
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  1. Kemp, Murray C & Liviatan, Nissan, 1973. "Production and Trade Patterns under Uncertainty," The Economic Record, The Economic Society of Australia, vol. 49(126), pages 215-27, June.
  2. Rose, Andrew, 1999. "One Money, One Market: Estimating the Effect of Common Currencies on Trade," Seminar Papers 678, Stockholm University, Institute for International Economic Studies.
  3. Andrew K. Rose & Eric van Wincoop, 2001. "National Money as a Barrier to International Trade: The Real Case for Currency Union," American Economic Review, American Economic Association, vol. 91(2), pages 386-390, May.
  4. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," CEPR Discussion Papers 1131, C.E.P.R. Discussion Papers.
  5. Voss, G M, 1998. "Monetary Integration, Uncertainty and the Role of Money Finance," Economica, London School of Economics and Political Science, vol. 65(258), pages 231-45, May.
  6. Devereux, Michael B., 2004. "Should the exchange rate be a shock absorber?," Journal of International Economics, Elsevier, vol. 62(2), pages 359-377, March.
  7. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1993. "International business cycles: theory vs. evidence," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall, pages 14-29.
  8. James E. Anderson & Eric van Wincoop, 2001. "Gravity with Gravitas: A Solution to the Border Puzzle," NBER Working Papers 8079, National Bureau of Economic Research, Inc.
  9. Michael B. Devereux & Charles Engel & Cedric Tille, 1999. "Exchange Rate Pass-Through and the Welfare Effects of the Euro," NBER Working Papers 7382, National Bureau of Economic Research, Inc.
  10. Rose, Andrew K, 2003. "A Meta-Analysis of the Effect of Common Currencies on International Trade," CEPR Discussion Papers 4341, C.E.P.R. Discussion Papers.
  11. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1987. "International real business cycles," Working Papers 426, Federal Reserve Bank of Minneapolis.
  12. Cole, Harold L. & Obstfeld, Maurice, 1991. "Commodity trade and international risk sharing : How much do financial markets matter?," Journal of Monetary Economics, Elsevier, vol. 28(1), pages 3-24, August.
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