{"title":"The Exchange Rate Elasticity of Exports: A Shock-Dependent Approach","authors":"Patrick Alexander, Abeer Reza","doi":"10.1057/s41308-023-00234-7","DOIUrl":null,"url":null,"abstract":"<p>The exchange rate elasticity of exports is often interpreted and estimated as an unconditional structural parameter in the literature. We show that this elasticity, in fact, varies across the structural shocks that generate movements in the exchange rate in the first place. We use a small-open-economy SVAR model, estimated with Canadian data, to derive estimates for the conditional exchange rate elasticity of exports (CEREE) for seven structural shocks used in the literature. Estimates for CEREEs vary in magnitude, sign, and significance across shocks. They are stronger for foreign shocks and weaker than expected by standard economic theory for domestic and exogenous exchange rate shocks. Recent developments from the dominant currency paradigm can potentially explain some, but not all, of our results. Our findings highlight the risk of treating the exchange rate elasticity as an unconditional structural relationship in forming expectations.</p>","PeriodicalId":47177,"journal":{"name":"Imf Economic Review","volume":"22 1","pages":""},"PeriodicalIF":3.3000,"publicationDate":"2024-02-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Imf Economic Review","FirstCategoryId":"96","ListUrlMain":"https://doi.org/10.1057/s41308-023-00234-7","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
The exchange rate elasticity of exports is often interpreted and estimated as an unconditional structural parameter in the literature. We show that this elasticity, in fact, varies across the structural shocks that generate movements in the exchange rate in the first place. We use a small-open-economy SVAR model, estimated with Canadian data, to derive estimates for the conditional exchange rate elasticity of exports (CEREE) for seven structural shocks used in the literature. Estimates for CEREEs vary in magnitude, sign, and significance across shocks. They are stronger for foreign shocks and weaker than expected by standard economic theory for domestic and exogenous exchange rate shocks. Recent developments from the dominant currency paradigm can potentially explain some, but not all, of our results. Our findings highlight the risk of treating the exchange rate elasticity as an unconditional structural relationship in forming expectations.
期刊介绍：
The IMF Economic Review is the official research journal of the International Monetary Fund (IMF). It is dedicated to publishing peer-reviewed, high-quality, context-related academic research on open-economy macroeconomics. It emphasizes rigorous analysis with an empirical orientation that is of interest to a broad audience, including academics and policymakers. Studies that borrow from, and interact with, other fields such as finance, international trade, political economy, labor, economic history or development are also welcome.
The views presented in published papers are those of the authors and should not be attributed to, or reported as, reflecting the position of the IMF, its Executive Board, or any other organization mentioned herein.
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