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Demand for Value Added and Value-Added Exchange Rates

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  • Rudolfs Bems
  • Robert C. Johnson

Abstract

We examine the role of cross-border input linkages in governing how international relative price changes influence demand for domestic value added. We define a novel value-added real effective exchange rate (REER), which aggregates bilateral value-added price changes, and link this REER to demand for value added. Input linkages enable countries to gain competitiveness following depreciations by supply chain partners, and hence counterbalance beggar-thy-neighbor effects. Cross-country differences in input linkages also imply that the elasticity of demand for value added is country specific. Using global input-output data, we demonstrate these conceptual insights are quantitatively important and compute historical value-added REERs.

Suggested Citation

  • Rudolfs Bems & Robert C. Johnson, 2015. "Demand for Value Added and Value-Added Exchange Rates," NBER Working Papers 21070, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:21070
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    JEL classification:

    • F1 - International Economics - - Trade
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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