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Global Trade and the Dollar

Author

Listed:
  • Mikkel Plagborg-Moller

    (Harvard University)

  • Gita Gopinath

    (Harvard)

  • Emine Boz

    (International Monetary Fund)

Abstract

We document the outsize role played by the U.S. dollar in driving international trade prices and flows. Our analysis is the first to examine the consequences of the dollar's prominence as an invoicing currency using a globally representative panel data set. We establish three facts: 1) The dollar exchange rate quantitatively dominates the bilateral exchange rate in price pass-through and trade elasticity regressions. 2) The cross-sectional heterogeneity in pass-through/elasticity across country pairs is related to the share of imports invoiced in dollars. 3) Bilateral terms of trade are essentially uncorrelated with bilateral exchange rates. Our results derive from fixed effects panel regressions as well as a Bayesian semiparametric hierarchical panel data model. Unlike standard panel regressions, the Bayesian approach allows us to quantify the cross-sectional heterogeneity of exchange rate pass-through/elasticities and the relation of this heterogeneity to dollar invoicing. Our results imply that the majority of international trade is best characterized by a dominant currency paradigm, as opposed to the traditional producer or local currency pricing paradigms.

Suggested Citation

  • Mikkel Plagborg-Moller & Gita Gopinath & Emine Boz, 2017. "Global Trade and the Dollar," 2017 Meeting Papers 1041, Society for Economic Dynamics.
  • Handle: RePEc:red:sed017:1041
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    References listed on IDEAS

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    Cited by:

    1. repec:bis:bisbpc:96-11 is not listed on IDEAS
    2. Antoine Berthou & Emannuel Dhyne, 2018. "Exchange rate movements,firm-level exports and heterogeneity," Working Paper Research 334, National Bank of Belgium.
    3. Akinci, Ozge & Queralto, Albert, 2018. "Exchange rate dynamics and monetary spillovers with imperfect financial markets," Staff Reports 849, Federal Reserve Bank of New York, revised 01 May 2019.
    4. Chen, Natalie & Chung, Wanyu & Novy, Dennis, 2018. "Vehicle Currency Pricing and Exchange Rate Pass-Through," CEPR Discussion Papers 13085, C.E.P.R. Discussion Papers.

    More about this item

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F1 - International Economics - - Trade
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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