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Dominant Currencies and the Export Supply Channel by Erik Frohm is a Economics, Econometrics and Finance article available to read on EtoBox.

What is Dominant Currencies and the Export Supply Channel about?

The dominant currency paradigm (DCP) predicts negligible effects of exchange rate changes on export volumes through the expenditure-switching channel (Gopinath et al., 2020). However, exports can still adjust through other supply-side channels. With bilateral trade data at the HS2-product level, panel fixed-effects regressions and an instrumental variables (IV) approach, this paper presents several novel findings: (i), a depreciation of an exporter’s currency against the US-dollar increases total nominal exports between non-US countries, whereas bilateral exchange rates matter very little. (ii), the export response is primarily driven by an increase in export unit values in the exporter’s currency, whereas less than a third of the impact is driven by an increase in export volumes. (iii), there is no statistically significant increase in average export volumes per firm (the intensive margin), while the increase in export volumes is solely driven by entry of exporting firms (the extensive margin). These results are robust across econometric specifications, estimators and definitions of entry and highlight how export supply can adjust to exchange rate changes in a world with dominant

Who reads Dominant Currencies and the Export Supply Channel?

Author

Erik Frohm

Publisher

Elsevier BV

Published

2023

Language

EN

Field

Economics, Econometrics and Finance (Social Sciences)