Bilateral Exchange Rates and Jobs

33 Pages Posted: 4 Apr 2012

See all articles by Eddy Bekkers

Eddy Bekkers

World Trade Organization (WTO)

Joseph F. Francois

University of Bern - Department of Economics; Centre for Economic Policy Research (CEPR); Vienna Institute of International Economic Studies (WIIW); University of Adelaide - School of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 2012

Abstract

We study the labor market effects of bilateral exchange rate realignment. We place emphasis on the composition of trade, the role of in- termediates, and the underlying conditions of the labor market. Employment effects hinge on the fraction exported to and imported from the trading partner. A larger fraction exported to and a smaller fraction imported from the trading partner make it more likely that appreciation has beneficial effects. Furthermore, more sticky price expectations in wage formation, a smaller fraction of intermediates in the production process, and a lower rate of importer pass through make it more likely that appreciation of the exchange rate of the trade partner has positive employment effects. At a more technical level, the scope for substitution away from higher priced inputs, either toward other sources of supply, or toward value added, is also important to the direction and magnitude of changes in employment.

Keywords: bilateral exchange rates, devaluation, exchange rates and trade, trade and employment

JEL Classification: F32, F41

Suggested Citation

Bekkers, Eddy and Francois, Joseph F, Bilateral Exchange Rates and Jobs (March 2012). CEPR Discussion Paper No. DP8906. Available at SSRN: https://ssrn.com/abstract=2034124

Eddy Bekkers (Contact Author)

World Trade Organization (WTO) ( email )

Rue de Lausanne 154
Geneva 21, CH-1211
Switzerland

Joseph F Francois

University of Bern - Department of Economics ( email )

Schanzeneckstrasse 1
Bern, CH-3001
Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Vienna Institute of International Economic Studies (WIIW) ( email )

Oppolzergasse 6
A-1010 Vienna
Austria

University of Adelaide - School of Economics ( email )

Adelaide SA, 5005
Australia
+61 8 8303 5540 (Phone)
+61 8 8223 1460 (Fax)

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