An Investigation on the Effect of Real Exchange Rate Movements on OECD Bilateral Exports

47 Pages Posted: 11 Aug 2008 Last revised: 12 Aug 2008

See all articles by Antoine Berthou

Antoine Berthou

Université Paris I Panthéon-Sorbonne - Centre Maison des Sciences Economiques; Paris School of Economics (PSE)

Date Written: July 31, 2008

Abstract

The reaction of exports to real exchange rate movements can differ according to the nature of the destination country. We derive and estimate a gravity equation for 20 OECD exporting countries and 52 developed and developing importing countries. We test how trade costs dampen the effect of real exchange rate movements on bilateral exports, and show that the elasticity on the real exchange rate is reduced when (i) the destination country has a low quality of institutions; (ii) this country is more distant; and (iii) the efficiency of customs is low in both the importing and exporting countries. These results are highly consistent with the existence of an hysteresis effect of real exchange rate movements on trade, as suggested by Baldwin and Krugman (1989).

Keywords: Trade, Exchange Rate Movements, Institutions

JEL Classification: F10, F32, D73

Suggested Citation

Berthou, Antoine, An Investigation on the Effect of Real Exchange Rate Movements on OECD Bilateral Exports (July 31, 2008). ECB Working Paper No. 920, Available at SSRN: https://ssrn.com/abstract=1157776

Antoine Berthou (Contact Author)

Université Paris I Panthéon-Sorbonne - Centre Maison des Sciences Economiques ( email )

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Paris Cedex 13, 75647
France
(+33)144078211 (Phone)

Paris School of Economics (PSE) ( email )

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Paris, 75014 75014
France

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