The Valuation Effects of Trade

Omar Barbiero

No 21-11, Working Papers from Federal Reserve Bank of Boston

Abstract: This paper estimates the cash flow and real effects of currency mismatches generated by foreign-priced operations of French manufacturers. The value of transactions invoiced in foreign currencies is twice as sensitive to exchange rates as the value of transactions invoiced in the domestic currency. I aggregate foreign-priced operations to the firm level to build a shift-share measure of invoice currency mismatch. This measure outperforms any trade-weighted effective exchange rate index in explaining cash flows of trading firms. Large firms absorb valuation shocks in their balance sheet, and small exporters partially hedge their dollar-priced exports with dollar-priced imports. Only investment and payroll of small domestic-oriented firms are sensitive to invoice currency valuations. These results show how trade value sensitivities to currency fluctuations can coexist with the evidence of disconnect between exchange rates and real macroeconomic fundamentals.

Keywords: exchange rate sensitivity; currency mismatch; dollar-priced trade (search for similar items in EconPapers)
JEL-codes: F30 F31 F32 F34 F36 F40 F41 F42 (search for similar items in EconPapers)
Pages: 98
Date: 2021-09-01
New Economics Papers: this item is included in nep-cwa, nep-int and nep-opm
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedbwp:93547

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DOI: 10.29412/res.wp.2021.11

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