Demand for Value Added and Value-Added Exchange Rates

71 Pages Posted: 13 Oct 2015

See all articles by Rudolfs Bems

Rudolfs Bems

International Monetary Fund (IMF); European Central Bank (ECB)

Robert C. Johnson

University of Notre Dame - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 2015

Abstract

We examine the role of cross-border input linkages in governing how international relative price changes influence demand for domestic value added. We define a novel value-added real effective exchange rate (REER), which aggregates bilateral value-added price changes, and link this REER to demand for value added. Input linkages enable countries to gain competitiveness following depreciations by supply chain partners, and hence counterbalance beggar-thy-neighbor effects. Cross-country differences in input linkages also imply that the elasticity of demand for value added is country specific. Using global input-output data, we demonstrate these conceptual insights are quantitatively important and compute historical value-added REERs.

Keywords: Real effective exchange rate, global supply chains, value, value added, elasticity, General,

JEL Classification: -;- F10, F40

Suggested Citation

Bems, Rudolfs and Johnson, Robert C., Demand for Value Added and Value-Added Exchange Rates (September 2015). IMF Working Paper No. 15/199. Available at SSRN: https://ssrn.com/abstract=2672995

Rudolfs Bems (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Robert C. Johnson

University of Notre Dame - Department of Economics ( email )

Notre Dame, IN 46556
United States

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