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Demand for Value Added and Value-Added Exchange Rates

Rudolfs Bems and Robert Johnson ()

American Economic Journal: Macroeconomics, 2017, vol. 9, issue 4, 45-90

Abstract: We examine how cross-border input linkages shape the response of demand for value added to international relative price changes. We define a novel value-added real effective exchange rate (REER), which aggregates bilateral value-added price changes. Spillovers via input linkages lower the sensitivity of the value-added REER to price changes by supply chain partners because they counterbalance demand-side expenditure switching. Input linkages also raise the price elasticity of demand relative to the conventional REER framework, making demand more sensitive to REER changes. Using global input-output data, we demonstrate that these conceptual insights are quantitatively important in a case study of European competitiveness.

JEL-codes: E31 F23 F31 L14 (search for similar items in EconPapers)
Date: 2017
Note: DOI: 10.1257/mac.20150216
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Working Paper: Demand for Value Added and Value-Added Exchange Rates (2015) Downloads
Working Paper: Demand for Value Added and Value-Added Exchange Rates (2015) Downloads
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Handle: RePEc:aea:aejmac:v:9:y:2017:i:4:p:45-90