Exchange Rate Regimes, Specialization and Trade Volume
Michael B. Devereux
University of British Columbia (UBC) - Department of Economics; Centre for Economic Policy Research (CEPR)
Graham M. Voss
University of Victoria - Department of Economics
HKIMR Working Paper No. 22/2006
We develop a general equilibrium monetary model of endogenous specialization and international trade to examine the degree of specialization and trade volume under alternative exchange rate regimes. Where demand shocks are important, we demonstrate an increase in specialization, trade and welfare under coordinated fixed exchange rates, equivalent to a common currency, relative to flexible exchange rates. Where supply shocks are important, the effects on specialization and trade are smaller and ambiguous in direction, though the welfare effects are comparable to those for demand shocks.
Number of Pages in PDF File: 27
Keywords: Exchange Rates, Common Currency, International Trade
JEL Classification: E42, F33, F42
Date posted: August 23, 2007
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