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Bilateral Exchange Rates and Jobs

  • Eddy Bekkers
  • Joseph F. Francois

    ()

    (The Vienna Institute for International Economic Studies, wiiw)

We study the labour 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 labour 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 towards other sources of supply, or towards value-added, is also important to the direction and magnitude of changes in employment.

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Paper provided by The Vienna Institute for International Economic Studies, wiiw in its series wiiw Working Papers with number 83.

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Length: 31 pages including 2 Tables and 3 Figures
Date of creation: Jun 2012
Date of revision:
Publication status: Published as wiiw Working Paper
Handle: RePEc:wii:wpaper:83
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  1. Frank Smets & Raf Wouters, 2003. "An Estimated Dynamic Stochastic General Equilibrium Model of the Euro Area," Journal of the European Economic Association, MIT Press, vol. 1(5), pages 1123-1175, 09.
  2. P. Krugman & L. Taylor, 1976. "Contractionary Effects of Devaluations," Working papers 191, Massachusetts Institute of Technology (MIT), Department of Economics.
  3. 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.
  4. Christopher J. Erceg & Luca Guerrieri & Christopher Gust, 2006. "SIGMA: A New Open Economy Model for Policy Analysis," International Journal of Central Banking, International Journal of Central Banking, vol. 2(1), March.
  5. Bodenstein, Martin & Erceg, Christopher & Guerrieri, Luca, 2010. "The Effects of Foreign Shocks When Interest Rates Are at Zero," CEPR Discussion Papers 8006, C.E.P.R. Discussion Papers.
  6. 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.
  7. Edward, Sebastian, 1986. "Are Devaluations Contractionary?," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 501-08, August.
  8. N. Gregory Mankiw & Ricardo Reis, 2010. "Imperfect Information and Aggregate Supply," Discussion Papers 0910-11, Columbia University, Department of Economics.
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