Dollar Invoicing, Exchange Rates and International Trade

Abstract

This paper studies the role of exchange rates and dollar invoicing in driving the dynamics of international trade flows. It uses a granular decomposition of trade flows at the bilateral level to highlight a bifurcation, whereby in response to a rise in US interest rates, final goods trade between non-US countries, as well as trade that is more regionally oriented, declines by more than does trade that is global value chainoriented. These results highlight an important role played by global value chains in mitigating the negative impact of external shocks.

Full Publication: The Price, Real and Financial Effects of Exchange Rates