The Relationship Between Exchange Rates and International Trade : A Review of Economic Literature / World Trade Organization.

Format:

Book

Government document

Author/Creator:

World Trade Organization.

Series:

WTO Working Papers, 25189808 ; no.2011/17.

WTO Working Papers, 25189808 ; no.2011/17

Language:

English

Subjects (All):

Economic research and trade policy analysis.

Local Subjects:

Economic research and trade policy analysis.

Physical Description:

1 online resource (29 pages).

Place of Publication:

Geneva : World Trade Organization, 2011.

System Details:

text file

Summary:

This paper surveys a wide body of economic literature on the relationship between currencies and trade. Two main issues are investigated: the impact on international trade of exchange rate volatility and of currency misalignments. On average, exchange rate volatility has a negative (even if not large) impact on trade flows. The extent of this effect depends on a number of factors, including the existence of hedging instruments, the structure of production, and the degree of economic integration across countries. Exchange rate misalignments are predicted to have short-run effects in models with price rigidities, but the exact impact depends on a number of features, such as the pricing strategy of firms engaging in international trade and the importance of global production networks. This effect is predicted to disappear in the long-run, unless some other distortion characterizes the economy. Empirical results confirm that short-run effects can exist, but their size and persistence over time are not consistent across different studies.

Access Restriction:

Restricted for use by site license.