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WTO Staff Working Papers, Economic Research and Statistics Division, WTO >
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http://hdl.handle.net/10419/57610
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| Title: | | The relationship between exchange rates and International Trade: A review of economic literature  |
| Authors: | | Auboin, Marc Ruta, Michel |
| Issue Date: | | 2011 |
| Series/Report no.: | | Staff working paper ERSD 2011-17 |
| Abstract: | | This paper surveys a wide body of economic literature on the relationship between currencies and trade. Specifically, two main issues are investigated: the impact on international trade of exchange rate volatility and of currency misalignments. On average, exchange rate volatility has a negative (even if not large) impact on trade flows. The extent of this effect depends on a number of factors, including the existence of hedging instruments, the structure of production (e.g. the prevalence of small firms), and the degree of economic integration across countries. Exchange rate misalignments are predicted to have short-run effects in models with price rigidities, but the exact impact depends on a number of features, such as the pricing strategy of firms engaging in international trade and the importance of global production networks. This effect is predicted to disappear in the long-run, unless some other distortion characterizes the economy. Empirical results confirm that short-run effects can exist, but their size and persistence over time are not consistent across different studies. |
| Subjects: | | exchange rates volatility misalignments international trade |
| JEL: | | F10 F31 F55 O19 G21 G32 |
| Document Type: | | Working Paper |
| Appears in Collections: | | WTO Staff Working Papers, Economic Research and Statistics Division, WTO
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