The Causal Effect of the Dollar on Trade

26 Pages Posted: 3 Dec 2020

See all articles by Sai Ma

Sai Ma

Board of Governors of the Federal Reserve System

Tim Schmidt-Eisenlohr

Board of Governors of the Federal Reserve System

Shaojun Zhang

The Ohio State University

Multiple version iconThere are 2 versions of this paper

Date Written: 2020

Abstract

This paper establishes a causal link between the dollar exchange rate and international trade flows, employing a new instrument for the U.S. Dollar that is based on domestic U.S. housing activity (Ma and Zhang (2019)). In line with the dominant currency paradigm (Gopinath et al. (2020)), import prices and quantities respond strongly to a country’s exchange rate with the U.S. dollar. Once we instrument the dollar, we find evidence for perfect pass-through of the dollar exchange rate to import prices. A dollar appreciation of 1 percent lowers import quantities by 1.5 percent for countries that fully invoice in dollars.

JEL Classification: F140, f310, G150

Suggested Citation

Ma, Sai and Schmidt-Eisenlohr, Tim and Zhang, Shaojun, The Causal Effect of the Dollar on Trade (2020). CESifo Working Paper No. 8727, Available at SSRN: https://ssrn.com/abstract=3741800 or http://dx.doi.org/10.2139/ssrn.3741800

Sai Ma (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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Washington, DC 20551
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HOME PAGE: http://saimaecon.com

Tim Schmidt-Eisenlohr

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Shaojun Zhang

The Ohio State University

2100 Neil Avenue
Columbus, OH 43210-1144
United States

HOME PAGE: http://sites.google.com/view/zhangshaojun

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