Exchange rates, international trade and growth: Re-evaluation of underevaluation

Arbeitspapier

This paper shows that a regional bias resulting from trade integration alters the transmission of a country's monetary policy by shifting the burden of the exchange rate adjustment towards the less integrated trading partners. I first develop a simple model which illustrates how a concentration of trade flows among regional trading partners affects the sensitivity of the trade balance to the terms-of-trade. In particular, the trade balance becomes less sensitive to the terms-of-trade vis-a-vis regional partners and more sensitive to the terms-of-trade vis-a-vis the other country. I then test the implication of the model using a panel of 133 countries between 1985 - 2010 that includes information on Regional Trade Agreements (RTA). I find that movements in the terms-of-trade vis-a-vis non-RTA members affect a country´s trade balance, while movements vis-a-vis RTA partners do not.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Graduate Institute of International and Development Studies Working Paper ; No. HEIDWP05-2016

Classification and Topics

• Classification: Wirtschaft ; Trade: General ; Trade Policy; International Trade Organizations ; Empirical Studies of Trade ; Economic Integration ; Macroeconomic Aspects of International Trade and Finance: General ; Open Economy Macroeconomics ; Macroeconomic Issues of Monetary Unions
• Subject: trade balance ; regional trade agreements ; competitive depreciation ; economic integration ; terms-of-trade

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Sokolova, Maria V.
• Event: Veröffentlichung
• (who): Graduate Institute of International and Development Studies
• (where): Geneva
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/156121
• Last update: 10.03.2025, 11:42 AM CET