Global Trade and the Dollar

Emine Boz, Gita Gopinath and Mikkel Plagborg-Moller

Working Paper from Harvard University OpenScholar

Abstract: We document that it is not bilateral exchange rates but the dollar exchange rate that 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 cross-sectional heterogeneity in pass-through/elasticity across country pairs is related to the share of imports invoiced in dollars. Our results derive from fixed effects panel regressions as well as a Bayesian semiparametric hierarchical panel data model. Unlike standard panel regressions, the Bayesian approach allows us to quantify the cross-sectional heterogeneity of exchange rate pass-through/elasticities and the relation of this heterogeneity to dollar invoicing. Our findings strongly support the dominant currency paradigm as opposed to the traditional Mundell-Fleming pricing paradigms.

Date: 2017-01
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (64)

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Related works:
Working Paper: Global Trade and the Dollar (2017)
Working Paper: Global Trade and the Dollar (2017)
Working Paper: Global Trade and the Dollar (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:qsh:wpaper:489661

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