Global Trade Flows: Revisiting the Exchange Rate Elasticities

49 Pages Posted: 2 Dec 2016

Date Written: November 2016

Abstract

This paper contributes to the debate on exchange rate elasticities by providing a set of price and quantity elasticities for 51 advanced and emerging market economies. Specifically, we report for each of these countries the elasticity of trade prices and trade quantities on the export and on the import side, as well as the reaction of the trade balance. To this aim, the paper uses a large database of highly disaggregated bilateral trade flows, covering 5000 products and more than 160 trading partners. We present a range of estimates using standard regression techniques combined with generated repressors that aim to address key omitted variable biases, relating in particular to unobserved marginal costs and competitor prices in the importing market. We also subject our results to a battery of robustness checks that leave the main findings broadly unchanged. Overall, all countries in our sample satisfy the Marshall-Lerner conditions, suggesting that exchange rate changes can play an important role in addressing global trade imbalances.

Keywords: exchange rates, trade elasticities, exchange rate pass-through, competitiveness

JEL Classification: C51, F14, F31, F33, F41

Suggested Citation

Bussiere, Matthieu and Gaulier, Guillaume and Steingress, Walter, Global Trade Flows: Revisiting the Exchange Rate Elasticities (November 2016). Banque de France Working Paper No. 608. Available at SSRN: https://ssrn.com/abstract=2878624 or http://dx.doi.org/10.2139/ssrn.2878624

Matthieu Bussiere (Contact Author)

Banque de France ( email )

Paris
France

Guillaume Gaulier

Banque de France ( email )

Paris
France

Walter Steingress

Banque de France ( email )

Paris
France

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