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Bilateral Exchange Rates and Jobs

  • Eddy Bekkers


    (The Vienna Institute for International Economic Studies, wiiw)

  • 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. Martin Bodenstein & Christopher J. Erceg & Luca Guerrieri, 2009. "The effects of foreign shocks when interest rates are at zero," International Finance Discussion Papers 983, Board of Governors of the Federal Reserve System (U.S.).
  2. Edward, Sebastian, 1986. "Are Devaluations Contractionary?," The Review of Economics and Statistics, MIT Press, vol. 68(3), pages 501-08, August.
  3. Krugman, Paul & Taylor, Lance, 1978. "Contractionary effects of devaluation," Journal of International Economics, Elsevier, vol. 8(3), pages 445-456, August.
  4. Christopher J. Erceg & Luca Guerrieri & Christopher Gust, 2006. "SIGMA: a new open economy model for policy analysis," International Finance Discussion Papers 835, Board of Governors of the Federal Reserve System (U.S.).
  5. N. Gregory Mankiw & Ricardo Reis, 2010. "Imperfect Information and Aggregate Supply," NBER Working Papers 15773, National Bureau of Economic Research, Inc.
  6. Ray C Fair, 2010. "Estimated Macroeconomic Effects of a Chinese Yuan Appreciation," Business Economics, Palgrave Macmillan, vol. 45(4), pages 233-243, October.
  7. Frank Smets & Raf Wouters, 2002. "An estimated dynamic stochastic general equilibrium model of the euro area," Working Paper Research 35, National Bank of Belgium.
  8. 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.
  9. Ray C. Fair, 2010. "Estimated Macroeconomic Effects of a Chinese Yuan Appreciation," Cowles Foundation Discussion Papers 1755, Cowles Foundation for Research in Economics, Yale University.
  10. 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.
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