Exchange Rate Regimes and Trade

20 Pages Posted: 15 Aug 2007

See all articles by David Cobham

David Cobham

Heriot-Watt University - School of Management and Languages

Abstract

A new version of the gravity model is used to estimate the effect of a full range of de facto exchange rate regimes on bilateral trade. The results indicate that, while participation in a common currency union is typically strongly pro-trade, other exchange rate regimes which lower the exchange rate uncertainty and transactions costs associated with international trade are significantly more pro-trade than the default regime of a double float. They suggest that the direct and indirect trade-creating effects of these regimes on uncertainty and transactions costs tend to outweigh the trade-diverting substitution effects. Tariff-equivalent monetary barriers associated with each exchange rate regime are also calculated.

Suggested Citation

Cobham, David, Exchange Rate Regimes and Trade. Manchester School, Vol. 75, Issue s1, pp. 44-63, September 2007, Available at SSRN: https://ssrn.com/abstract=1006279 or http://dx.doi.org/10.1111/j.1467-9957.2007.01037.x

David Cobham

Heriot-Watt University - School of Management and Languages ( email )

Edinburgh EH14 4AS, Scotland
United Kingdom
+44(0)131 451 3495 (Phone)
+44(0)131 451 3296 (Fax)

HOME PAGE: http://www.sml.hw.ac.uk/Staff_Profiles/DavidCobham.html

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