IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/51585.html
   My bibliography  Save this paper

Trade margins and exchange rate regimes: new evidence from a panel VAR

Author

Listed:
  • Cavallari, Lilia
  • D'Addona, Stefano

Abstract

This paper studies how trade margins respond to output and terms of trade shocks in different exchange rate regimes within a panel of 23 OECD economies over the period 1988-2011. Using a panel VAR model, we confirm the predictions of entry models about the behaviour of export margins over the cycle. In addition, we find remarkable differences depending on the exchange rate regime. We document that fixed exchange rates have a positive effect on the extensive margin of trade in response to external shocks while flexible exchange rates have a pro-trade effect in response to output shocks. Our results imply that as long as extensive margins are a relevant portion of trade and external shocks are a major source of business cycle variability, the stabilization advantage of flexible exchange rates may be lower than previously thought.

Suggested Citation

  • Cavallari, Lilia & D'Addona, Stefano, 2013. "Trade margins and exchange rate regimes: new evidence from a panel VAR," MPRA Paper 51585, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:51585
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/51585/1/MPRA_paper_51585.pdf
    File Function: original version
    Download Restriction: no

    References listed on IDEAS

    as
    1. Born, Benjamin & Juessen, Falko & Müller, Gernot J., 2013. "Exchange rate regimes and fiscal multipliers," Journal of Economic Dynamics and Control, Elsevier, vol. 37(2), pages 446-465.
    2. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    3. Cavallari Lilia, 2007. "A Macroeconomic Model of Entry with Exporters and Multinationals," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-32, September.
    4. Auray, Stéphane & Eyquem, Aurélien & Poutineau, Jean-Christophe, 2012. "The effect of a common currency on the volatility of the extensive margin of trade," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 1156-1179.
    5. Bergin, Paul R. & Lin, Ching-Yi, 2012. "The dynamic effects of a currency union on trade," Journal of International Economics, Elsevier, vol. 87(2), pages 191-204.
    6. Russ, Katheryn Niles, 2007. "The endogeneity of the exchange rate as a determinant of FDI: A model of entry and multinational firms," Journal of International Economics, Elsevier, vol. 71(2), pages 344-372, April.
    7. Dumitrescu, Elena-Ivona & Hurlin, Christophe, 2012. "Testing for Granger non-causality in heterogeneous panels," Economic Modelling, Elsevier, vol. 29(4), pages 1450-1460.
    8. Corsetti, Giancarlo & Martin, Philippe & Pesenti, Paolo, 2007. "Productivity, terms of trade and the `home market effect'," Journal of International Economics, Elsevier, vol. 73(1), pages 99-127, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Daniel Goya, 2014. "The Multiple Impacts of the Exchange Rate on Export Diversification," Cambridge Working Papers in Economics 1436, Faculty of Economics, University of Cambridge.
    2. Liu, Xiaohui & Zhang, Jing, 2015. "Export diversification and exchange-rate regimes: Evidences from 72 developing countries," MPRA Paper 66448, University Library of Munich, Germany.

    More about this item

    Keywords

    trade margins; international business cycle; Panel VAR model; exchange rate regimes.;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:51585. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter) or (Rebekah McClure). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.