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Demand for Value Added and Value-Added Exchange Rates

Rudolfs Bems and Robert Johnson ()

No 2015/199, IMF Working Papers from International Monetary Fund

Abstract: We examine the role of cross-border input linkages in governing how international relative price changes influence demand for domestic value added. We define a novel value-added real effective exchange rate (REER), which aggregates bilateral value-added price changes, and link this REER to demand for value added. Input linkages enable countries to gain competitiveness following depreciations by supply chain partners, and hence counterbalance beggar-thy-neighbor effects. Cross-country differences in input linkages also imply that the elasticity of demand for value added is country specific. Using global input-output data, we demonstrate these conceptual insights are quantitatively important and compute historical value-added REERs.

Keywords: WP; real value; Real effective exchange rate; global supply chains; Armington-REER index; value-added REER; REER weight; demand system; production elasticity; Armington-REER framework; weight difference; Armington-REER change; changes in the Armington-REER; Real effective exchange rates; Demand elasticity; Competition; Exchange rates; Exports; Global; Asia and Pacific (search for similar items in EconPapers)
Pages: 70
Date: 2015-09-08
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Journal Article: Demand for Value Added and Value-Added Exchange Rates (2017) Downloads
Working Paper: Demand for Value Added and Value-Added Exchange Rates (2015) Downloads
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Handle: RePEc:imf:imfwpa:2015/199