Export Dynamics in Large Devaluations

63 Pages Posted: 30 May 2017

See all articles by George Alessandria

George Alessandria

Federal Reserve Bank of Philadelphia

Sangeeta Pratap

Dept. of Economics Hunter College and Graduate Center, CUNY

Vivian Z. Yue

Emory University; Federal Reserve Bank of Atlanta

Multiple version iconThere are 2 versions of this paper

Date Written: 2013

Abstract

We study the source and consequences of sluggish export dynamics in emerging markets following large devaluations. We document two main features of exports that are puzzling for standard trade models. First, given the change in relative prices, exports tend to grow gradually following a devaluation. Second, high interest rates tend to suppress exports. To address these features of export dynamics, we embed a model of endogenous export participation due to sunk and per period export costs into an otherwise standard small open economy. In response to shocks to productivity, the interest rate, and the discount factor, we find the model can capture the salient features of export dynamics documented. At the aggregate level, the features giving rise to sluggish exports lead to more gradual net export reversals, sharper contractions and recoveries in output, and endogenous stagnation in labor productivity.

Suggested Citation

Alessandria, George A. and Pratap, Sangeeta and Yue, Vivian, Export Dynamics in Large Devaluations (2013). FRB International Finance Discussion Paper No. 1087. Available at SSRN: https://ssrn.com/abstract=2976781

George A. Alessandria (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

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Sangeeta Pratap

Dept. of Economics Hunter College and Graduate Center, CUNY ( email )

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Vivian Yue

Emory University ( email )

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Atlanta, GA 30327
United States

HOME PAGE: http://vivianyue.com

Federal Reserve Bank of Atlanta ( email )

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