Global Trade and the Dollar

Mikkel Plagborg-Moller, Gita Gopinath and Emine Boz

No 1041, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: We document the outsize role played by the U.S. dollar in driving international trade prices and flows. Our analysis is the first to examine the consequences of the dollar's prominence as an invoicing currency using a globally representative panel data set. We establish three facts: 1) The dollar exchange rate quantitatively dominates the bilateral exchange rate in price pass-through and trade elasticity regressions. 2) The cross-sectional heterogeneity in pass-through/elasticity across country pairs is related to the share of imports invoiced in dollars. 3) Bilateral terms of trade are essentially uncorrelated with bilateral exchange rates. 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 results imply that the majority of international trade is best characterized by a dominant currency paradigm, as opposed to the traditional producer or local currency pricing paradigms.

Date: 2017
New Economics Papers: this item is included in nep-ifn, nep-mon and nep-opm
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Citations: View citations in EconPapers (62)

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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:red:sed017:1041

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