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Persistent Trade Effects of Large Exchange Rate Shocks
Abstract
This paper presents a theoretical basis for the argument that large exchange rate shocks—such as the 1980s dollar cycle—may have persistent effects on trade flows and the equilibrium exchange rate itself. We begin with a partial-equilibrium model in which large exchange rate fluctuations lead to entry or exit decisions that are not reversed when the currency returns to its previous level. Then we develop a simple model of the feedback from hysteresis in trade to the exchange rate itself. Here we see that a large capital inflow, which leads to an initial appreciation, can result in a persistent reduction in the exchange rate consistent with trade balance.
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Citations
Cited by
Bernard, A. B., & Jensen, J. B. (2004) · Review of Economics and Statistics · doi:10.1162/003465304323031111 · Cited by 1,591
Manufacturing Firms in Developing Countries: How Well Do They Do, and Why?
Tybout, J. R. (2000) · Journal of Economic Literature · doi:10.1257/jel.38.1.11 · Cited by 1,530
Operating Flexibility, Global Manufacturing, and the Option Value of a Multinational Network
Kogut, B., & Kulatilaka, N. (1994) · Management Science · doi:10.1287/mnsc.40.1.123 · Cited by 1,131
Firm Heterogeneity, Exporting and Foreign Direct Investment
Greenaway, D., & Kneller, R. (2007) · The Economic Journal · doi:10.1111/j.1468-0297.2007.02018.x · Cited by 1,051
Economic Geography and Public Policy
Ottaviano, G., Robert-Nicoud, F., Baldwin, R., Forslid, R., & Martin, P. (2011) · Princeton University Press eBooks · doi:10.1515/9781400841233 · Cited by 987
Self-citation
Metadata
- Authors
- Baldwin, R., & Krugman, P.
- Venue
- The Quarterly Journal of Economics
- Publisher
- Oxford University Press (OUP)
- Published
- 1989-11
- Volume
- 104
- Issue
- 4
- Pages
- 635
- ISSN
- 0033-5533 (ISSN-L)
- OpenAlex
- W2065560699
- Cited by
- 934
- References
- 0
- FWCI
- 40.32
- Type
- journal article
- Language
- en
- Open access
- closed
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- Baldwin, R., & Krugman, P. (1989). Persistent Trade Effects of Large Exchange Rate Shocks. The Quarterly Journal of Economics. https://doi.org/10.2307/2937860
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Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
