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Bilateral Exchange Rates and Jobs

  • Eddy Bekkers
  • Joseph Francois

We study the labor market effects of bilateral exchange rate realignment. We place emphasis on the composition of trade, the role of intermediates, and the underlying conditions of the labor market. Employment effects hinge on the fraction exported to and imported from the trading partner. A larger fraction exported to and a smaller fraction imported from the trading partner make it more likely that appreciation has beneficial effects. Furthermore, more sticky price expectations in wage formation, a smaller fraction of intermediates in the production process, and a lower rate of importer pass through make it more likely that appreciation of the exchange rate of the trade partner has positive employment effects. At a more technical level, the scope for substitution away from higher priced inputs, either toward other sources of supply, or toward value added, is also important to the direction and magnitude of changes in employment.

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File URL: http://www.econ.jku.at/papers/2012/wp1202.pdf
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Paper provided by Department of Economics, Johannes Kepler University Linz, Austria in its series Economics working papers with number 2012-02.

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Length: 32 pages
Date of creation: Jan 2012
Date of revision:
Handle: RePEc:jku:econwp:2012_02
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Web page: http://www.econ.jku.at/

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  1. Frank Smets & Raf Wouters, 2002. "An estimated dynamic stochastic general equilibrium model of the euro area," Working Paper Research 35, National Bank of Belgium.
  2. Sweder van Wijnbergen, 1986. "Exchange Rate Management and Stabilization Policies in Developing Countries," NBER Chapters, in: Economic Adjustment and Exchange Rates in Developing Countries, pages 17-42 National Bureau of Economic Research, Inc.
  3. Erceg, Christopher & Guerriei, Luca & Gust, Christopher, 2006. "SIGMA: A New Open Economy Model for Policy Analysis," MPRA Paper 813, University Library of Munich, Germany.
  4. Martin Bodenstein & Christopher J. Erceg & Luca Guerrieri, 2009. "The effects of foreign shocks when interest rates are at zero," International Finance Discussion Papers 983, Board of Governors of the Federal Reserve System (U.S.).
  5. Christopher S. P. Magee & Stephen P. Magee, 2008. "The United States is a Small Country in World Trade," Review of International Economics, Wiley Blackwell, vol. 16(5), pages 990-1004, November.
  6. Sebastian Edwards, 1985. "Are Devaluations Contractionary?," NBER Working Papers 1676, National Bureau of Economic Research, Inc.
  7. N. Gregory Mankiw & Ricardo Reis, 2010. "Imperfect Information and Aggregate Supply," NBER Working Papers 15773, National Bureau of Economic Research, Inc.
  8. P. Krugman & L. Taylor, 1976. "Contractionary Effects of Devaluations," Working papers 191, Massachusetts Institute of Technology (MIT), Department of Economics.
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