EconPapers    
Economics at your fingertips  
 

Global Trade and the Dollar

Emine Boz (), Gita Gopinath and Mikkel Plagborg-Møller

No 23988, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We document that the U.S. dollar exchange rate drives global trade prices and volumes. Using a newly constructed data set of bilateral price and volume indices for more than 2,500 country pairs, we establish the following facts: 1) The dollar exchange rate quantitatively dominates the bilateral exchange rate in price pass-through and trade elasticity regressions. U.S. monetary policy induced dollar fluctuations have high pass-through into bilateral import prices. 2) Bilateral non-commodities terms of trade are essentially uncorrelated with bilateral exchange rates. 3) The strength of the U.S. dollar is a key predictor of rest-of-world aggregate trade volume and consumer/producer price inflation. A 1% U.S. dollar appreciation against all other currencies in the world predicts a 0.6--0.8% decline within a year in the volume of total trade between countries in the rest of the world, controlling for the global business cycle. 4) Using a novel Bayesian semiparametric hierarchical panel data model, we estimate that the importing country's share of imports invoiced in dollars explains 15% of the variance of dollar pass-through/elasticity across country pairs. Our findings strongly support the dominant currency paradigm as opposed to the traditional Mundell-Fleming pricing paradigms.

JEL-codes: E5 F1 F3 F4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn, nep-int, nep-mac, nep-mon and nep-opm
Date: 2017-11
Note: EFG IFM ME
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Published as Emine Boz & Gita Gopinath & Mikkel Plagborg-Møller, 2017. "Global Trade and the Dollar," IMF Working Papers, vol 17(239).

Downloads: (external link)
http://www.nber.org/papers/w23988.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:23988

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w23988
The price is Paper copy available by mail.

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.
Series data maintained by ().

 
Page updated 2017-12-19
Handle: RePEc:nbr:nberwo:23988