 Exchange rate regimes and tradeChristopher Adam (christopher.adam@qeh.ox.ac.uk) and David Cobham No 9, Money Macro and Finance (MMF) Research Group Conference 2006 from Money Macro and Finance Research Group Abstract: A ‘new version’ gravity model, is used to estimate the effect of a full range of de facto exchange rate regimes, as classified by Reinhart and Rogoff (2004), on bilateral trade. The results indicate that, while participation in a common currency union is typically strongly ‘pro-trade’– as first suggested by Rose (2000) – other exchange rate regimes which lower the exchange rate uncertainty and transactions costs associated with international trade between countries are significantly more pro-trade than the default regime of a ‘double float’. They suggest that the direct and indirect effects of exchange rate regimes on uncertainty and transactions costs tend to outweigh the trade-diverting substitution effects. In addition, there is evidence that membership of different currency unions by two countries has pro-trade effects, which can be understood in terms of a large indirect effect on transactions costs. Tariff-equivalent monetary barriers associated with each of the exchange rate regimes are also calculated Keywords: gravity; geography; exchange rate regime; currency union; transactions costs; tariff-equivalent barriers (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:mmf:mmfc06:9 Access Statistics for this paper More papers in Money Macro and Finance (MMF) Research Group Conference 2006 from Money Macro and Finance Research Group |
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