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2015 | OriginalPaper | Buchkapitel

Trade Margins and Exchange Rate Regimes: New Evidence from a Panel VARX Model

verfasst von : Lilia Cavallari, Stefano D’Addona

Erschienen in: Achieving Dynamism in an Anaemic Europe

Verlag: Springer International Publishing

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Abstract

This paper studies the dynamics of output and export margins in the aftermath of external shocks in fixed and floating exchange rate regimes. Using a panel VARX model, it traces the mean responses of output, terms of trade, extensive and intensive margins to real and nominal shocks in 22 developed economies over the period 1988–2011. It finds remarkable differences in the transmission of shocks depending on the exchange rate regimes. Overall, our findings provide novel evidence in support of the stabilization advantages of flexible exchange rates based on their ability to smooth extensive margins. These findings are consistent with the predictions of theoretical models with firm entry.

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Vorheriges Kapitel Can Trade Become Again an Engine of Growth for Europe and the World?

Nächstes Kapitel Rebalancing and the Euro

Non-exhaustive examples include Ghironi and Melitz (2005), Corsetti et al. (2007, 2013) and Bilbiie et al. (2012).

Despite a long history of failures to find a robust relation between exchange rate variability and trade, Rose (1999) has revived the debate by showing that the adoption of a currency union raises bilateral trade by a large amount. Subsequent research has supported the statistical significance, if not the magnitude of this result.

See, among others, Bergin and Lin (2012) and Auray et al. (2012).

Since the seminal study of Melitz (2003), a number of papers have investigated the implications of entry for the international business cycle. Open economy models with firm entry include, among others, Bergin and Glick (2007), Ghironi and Melitz (2005), Cavallari (2007, 2010, 2013) and Corsetti et al. (2007, 2013).

The countries included are: Australia, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Iceland, Italy, Japan, Korea, Luxembourg, Netherlands, Portugal, Spain, Sweden, Mexico, New Zealand, Norway, Switzerland, United Kingdom and the United States.

http://wits.worldbank.org/wits/.

In our notation \( j = 1,2, \ldots ,N \) is the exporting country, \( m = 1,2, \ldots ,M \) with \( m \ne j \) denotes the destination country. The total number of country pairs is \( 22 \times 22 \) as the set of destination countries includes the US.

The exogenous VAR model is estimated over the period 1970–2011 in order to improve efficiency.

We tried several recursive orderings of the endogenous vector in the VARX model. This did not significantly change our results.

Details on these statistics are available upon request.

In panel regressions for European countries, Bergin and Lin (2012) show that extensive margins have responded aggressively to the implementation of the Economic and Monetary Union in Europe (EMU). They find a statistically significant rise in extensive margins already four years ahead of actual EMU adoption, and ahead of any rise in overall trade. The estimated effect of the adoption of the Euro on the intensive margin of trade is, on the contrary, negligible. See also Auray et al. (2012).

Confidence intervals for the difference of the mean responses in the sample of peggers and floaters reflect differences in the variance of the estimated coefficients equation by equation (i.e., differences in the variance structure of floaters and peggers) as well as across equations (i.e. difference in the covariance structure between floaters and peggers).

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Titel: Trade Margins and Exchange Rate Regimes: New Evidence from a Panel VARX Model
verfasst von: Lilia Cavallari
Stefano D’Addona
Verlag: Springer International Publishing
Buch: Achieving Dynamism in an Anaemic Europe
Print ISBN: 978-3-319-14098-8

Electronic ISBN: 978-3-319-14099-5

Copyright-Jahr: 2015
DOI: https://doi.org/10.1007/978-3-319-14099-5_3