Exchange Rate Regimes and the Extensive Margin of Trade
Paul Bergin and
No 14126, NBER Working Papers from National Bureau of Economic Research, Inc
This paper finds that currency unions and direct exchange rate pegs raise trade through distinct channels. Panel data analysis of the period 1973-2000 indicates that currency unions have raised trade predominantly at the extensive margin, the entry of new firms or products. In contrast, direct pegs have worked almost entirely at the intensive margin, increased trade of existing products. A stochastic general equilibrium model is developed to understand this result, featuring price stickiness and firm entry under uncertainty. Because both regimes tend to reliably provide exchange rate stability over the horizon of a year or so, which is the horizon of price setting, they both lead to lower export prices and greater demand for exports. But because currency unions historically are more durable over a longer horizon than pegs, they encourage firms to make the longer-term investment needed to enter a new market. The model predicts that when exchange rate uncertainty is completely and permanently eliminated, all of the adjustment in trade should occur at the extensive margin.
JEL-codes: F4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-int and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7) Track citations by RSS feed
Published as Exchange Rate Regimes and the Extensive Margin of Trade , Paul R. Bergin, Ching-Yi Lin. in NBER International Seminar on Macroeconomics 2008 , Frankel and Pissarides. 2009
Downloads: (external link)
Chapter: Exchange Rate Regimes and the Extensive Margin of Trade (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:14126
Ordering information: This working paper can be ordered from
Access Statistics for this paper
More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().