US Cotton Exports and Bilateral Exchange Rates

Abstract

This paper compares the sensitivity of US cotton exports to the bilateral exchange rate for three Asian textile producers with a long series of yearly data from 1978 to 2010. The model of the cotton market includes an alternate supply, US production cost, and local mill use. Effects of each bilateral exchange rate vary considerably across these countries. Aggregation and the related trade weighted exchange rate lead to misleading results. Changes in the rate of depreciation have more robust effects than depreciation, suggesting a wealth effect on cash balance.