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Value-Added Exchange Rates

  • Rudolfs Bems
  • Robert C. Johnson

This paper updates the conceptual foundations for measuring real effective exchange rates (REERs) to allow for vertical specialization in trade. We derive a value-added REER describing how demand for the value added that a country produces changes as the price of its value added changes relative to competitors. We then compute this index for 42 countries from 1970-2009 using trade measured in value added terms and GDP deflators. There are substantial differences between value-added and conventional REERs. For example, China's value-added REER appreciated by 20 percentage points more than the conventional REER from 2000-2009. These differences are driven mainly by the theory-motivated shift in prices used to construct the value-added REER, not changes in bilateral weights.

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File URL: http://www.nber.org/papers/w18498.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18498.

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Date of creation: Oct 2012
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Handle: RePEc:nbr:nberwo:18498
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  1. Schmitz, Martin & De Clercq, Maarten & Fidora, Michael & Lauro, Bernadette & Pinheiro, Cristina, 2012. "Revisiting the effective exchange rates of the euro," Occasional Paper Series 134, European Central Bank.
  2. Marcel P. Timmer & Abdul Azeez Erumban & Bart Los & Robert Stehrer & Gaaitzen J. de Vries, 2014. "Slicing Up Global Value Chains," Journal of Economic Perspectives, American Economic Association, vol. 28(2), pages 99-118, Spring.
  3. Robert C. Johnson, 2012. "Trade in Intermediate Inputs and Business Cycle Comovement," NBER Working Papers 18240, National Bureau of Economic Research, Inc.
  4. Johnson, Robert C. & Noguera, Guillermo, 2012. "Accounting for intermediates: Production sharing and trade in value added," Journal of International Economics, Elsevier, vol. 86(2), pages 224-236.
  5. Robert C. Johnson & Guillermo Noguera, 2012. "Fragmentation and Trade in Value Added over Four Decades," NBER Working Papers 18186, National Bureau of Economic Research, Inc.
  6. Spilimbergo, Antonio & Vamvakidis, Athanasios, 2003. "Real effective exchange rate and the constant elasticity of substitution assumption," Journal of International Economics, Elsevier, vol. 60(2), pages 337-354, August.
  7. Kei-Mu Yi, 2000. "Can vertical specialization explain the growth of world trade?," Staff Reports 96, Federal Reserve Bank of New York.
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