Exchange Rates, International Trade and Growth: Re-Evaluation of Undervaluation

Maria Sokolova

No 332790, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: This paper shows that a regional bias resulting from trade integration alters the transmission of a country's monetary policy by shifting the burden of the exchange rate adjustment towards the less integrated trading partners. I first develop a simple model which illustrates how a concentration of trade flows among regional trading partners affects the sensitivity of the trade balance to the terms-of-trade. In particular, the trade balance becomes less sensitive to the terms-of-trade vis-à-vis regional partners and more sensitive to the terms-of-trade vis-à-vis the other country. I then test the implication of the model using a panel of 133 countries between 1985 - 2010 that includes information on Regional Trade Agreements (RTA). I find that movements in the terms-of-trade vis-à-vis non-RTA members affect a country's trade balance, while movements vis-à-vis RTA partners do not.

Keywords: International; Relations/Trade (search for similar items in EconPapers)
Date: 2016
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https://ageconsearch.umn.edu/record/332790/files/8265.pdf (application/pdf)

Related works:
Working Paper: Exchange Rates, International Trade, and Growth: Re-evaluation of Undervaluation (2017)
Working Paper: Exchange Rates, International Trade and Growth: Re-Evaluation of Undervaluation (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:pugtwp:332790

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