Demand for Value Added and Value-Added Exchange Rates

Rudolfs Bems and Robert Johnson

No 21070, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: F1 F4 (search for similar items in EconPapers)
Date: 2015-04
New Economics Papers: this item is included in nep-int and nep-opm
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Published as Rudolfs Bems & Robert Johnson, 2015. "Demand for Value Added and Value-Added Exchange Rates," IMF Working Papers, vol 15(199).
Published as Rudolfs Bems & Robert C. Johnson, 2017. "Demand for Value Added and Value-Added Exchange Rates," American Economic Journal: Macroeconomics, American Economic Association, vol. 9(4), pages 45-90, October.

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Journal Article: Demand for Value Added and Value-Added Exchange Rates (2017)
Working Paper: Demand for Value Added and Value-Added Exchange Rates (2015)
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