Global Trade Flows: Revisiting the Exchange Rate Elasticities

Matthieu Bussiere, Guillaume Gaulier and Walter Steingress

Open Economies Review, 2020, vol. 31, issue 1, No 2, 25-78

Abstract: Abstract This paper contributes to the debate on the magnitude of exchange rate elasticities by providing a set of price and quantity elasticities for 51 advanced and emerging-market economies. Specifically, we report for each of these countries the elasticity of trade prices and trade quantities on the export and on the import side, as well as the reaction of the trade balance. To this aim, the paper uses a large unified database of highly disaggregated bilateral trade flows, covering 5000 products and more than 160 trading partners. We present a range of estimates using not only standard regression techniques but also generated regressors that aim to uncover changes in the exchange rate elasticities due to unobserved marginal costs and competitor prices in the importing market. Our results show that quantity elasticities are significantly below one, pass-through is incomplete and export prices react significantly to exchange rate changes. In spite of low quantity elasticities, the trade balance reacts positively to a depreciation in all countries because export and import prices adjust. Overall, our findings suggest that exchange rate changes can play an important role in addressing global trade imbalances.

Keywords: Exchange rates; Trade elasticities; Exchange rate pass-through; Competitiveness (search for similar items in EconPapers)
JEL-codes: C51 F14 F31 F33 F41 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (16)

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Related works:
Working Paper: Global Trade Flows: Revisiting the Exchange Rate Elasticities (2017)
Working Paper: Global Trade Flows: Revisiting the Exchange Rate Elasticities (2016)
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DOI: 10.1007/s11079-019-09573-3

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