The relationship between exchange rates and International Trade: A review of economic literature

Arbeitspapier

This paper surveys a wide body of economic literature on the relationship between currencies and trade. Specifically, 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 (e.g. the prevalence of small firms), 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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: WTO Staff Working Paper ; No. ERSD-2011-17

Classification and Topics

• Classification: Wirtschaft ; Trade: General ; Foreign Exchange ; International Institutional Arrangements ; International Linkages to Development; Role of International Organizations ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
• Subject: exchange rates ; volatility ; misalignments ; international trade ; Wechselkurs ; Außenwirtschaft ; Volatilität

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Auboin, Marc ; Ruta, Michel
• Event: Veröffentlichung
• (who): World Trade Organization (WTO)
• (where): Geneva
• (when): 2011

Further information

• DOI: doi:10.30875/13e83562-en
• Handle: http://hdl.handle.net/10419/57610
• Last update: 10.03.2025, 11:44 AM CET