Exchange Rates and Trade: A Disconnect?

53 Pages Posted: 12 May 2017

See all articles by Daniel Leigh

Daniel Leigh

International Monetary Fund (IMF)

Weicheng Lian

International Monetary Fund (IMF)

Marcos Poplawski-Ribeiro

International Monetary Fund (IMF)

Rachel Szymanski

International Monetary Fund (IMF)

Viktor Tsyrennikov

Cornell University - Department of Economics

Hong Yang

International Monetary Fund (IMF)

Date Written: March 2017

Abstract

We examine the stability and strength of the relationship between exchange rates and trade over time using three alternative approaches, mitigating the endogeneity of the relation. We find that both exchange rate pass-through and the price elasticity of trade volumes are largely stable over time. Economic slack and financial conditions affect the relationship, but there is limited evidence that participation in global value chains has significantly changed the exchange rate-trade relationship over time.

Keywords: Foreign exchange, Global trade, exchange rate disconnect, exchange rates and trade, Country and Industry Studies of Trade, Open Economy Macroeconomics

JEL Classification: F14, F31, F41

Suggested Citation

Leigh, Daniel and Lian, Weicheng and Poplawski-Ribeiro, Marcos and Szymanski, Rachel and Tsyrennikov, Viktor and Yang, Hong, Exchange Rates and Trade: A Disconnect? (March 2017). IMF Working Paper No. 17/58. Available at SSRN: https://ssrn.com/abstract=2967416

Daniel Leigh (Contact Author)

International Monetary Fund (IMF) ( email )

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

Weicheng Lian

International Monetary Fund (IMF) ( email )

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

Marcos Poplawski-Ribeiro

International Monetary Fund (IMF) ( email )

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

Rachel Szymanski

International Monetary Fund (IMF) ( email )

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

Viktor Tsyrennikov

Cornell University - Department of Economics ( email )

Ithaca, NY
United States

Hong Yang

International Monetary Fund (IMF) ( email )

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

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