HKIMR Working Paper No. 22/2006
27 Pages Posted: 23 Aug 2007
Date Written: November 2004
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.
Keywords: Exchange Rates, Common Currency, International Trade
JEL Classification: E42, F33, F42
Suggested Citation: Suggested Citation
Devereux, Michael B. and Voss, Graham M., Exchange Rate Regimes, Specialization and Trade Volume (November 2004). HKIMR Working Paper No. 22/2006. Available at SSRN: https://ssrn.com/abstract=1009050 or http://dx.doi.org/10.2139/ssrn.1009050