The Financial Channel of the Exchange Rate and Global Trade

Sai Ma and Tim Schmidt-Eisenlohr

No 10495, CESifo Working Paper Series from CESifo

Abstract: This paper provides evidence that the U.S. dollar affects countries’ exports through the financial channel of the exchange rate (Bruno and Shin (2015)). Using global data on trade between countries whose currency is not the U.S. dollar, it documents a positive relationship between the dollar and import prices. Importantly, this effect is stronger when the dollar share of the exporter’s foreign borrowing is larger. Results strengthen substantially when instrumenting the dollar by U.S. domestic housing activity. Then, a dollar appreciation increases import prices and decreases import quantities, with effects being proportional to the source country’s foreign dollar borrowing share.

Keywords: dollar; dominant currency; financial channel; international trade (search for similar items in EconPapers)
JEL-codes: F14 F31 G15 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-fdg, nep-ifn, nep-int, nep-mon and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_10495

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