Exchange Rates and Trade: A Disconnect?
53 Pages Posted: 12 May 2017
Date Written: March 2017
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: Suggested Citation