Global Value Chains and External Adjustment: Do Exchange Rates Still Matter?

28 Pages Posted: 23 Jan 2020

See all articles by Gustavo Adler

Gustavo Adler

International Monetary Fund (IMF) - Research Department

Sergii Meleshchuk

International Monetary Fund (IMF)

Carolina Osorio-Buitron

International Monetary Fund (IMF)

Date Written: December 2019

Abstract

The paper explores how international integration through global value chains shapes the working of exchange rates to induce external adjustment both in the short and medium run. The analysis indicates that greater integration into international value chains reduces the exchange rate elasticity of gross trade volumes. This result holds both in the short and medium term, pointing to the rigidity of value chains. At the same time, greater value chain integration is associated with larger gross trade flows, relative to GDP, which tends to amplify the effect of exchange rate movements. Overall, combining these two results suggests that, for most countries, integration into global value chains does not materially alter the working of exchange rates and the benefits of exchange rate flexibility in facilitating external adjustment remain.

Keywords: Exchange rate shocks, Exchange rate policy, Exchange rate pass-through, Flexible exchange rates, Exchange rate adjustments, inflation targeting, foreign exchange intervention, exchange rate, WP, intermediate input, value chain, exchange rate movement, trade flow, FWD

JEL Classification: F10, F32, O24, F1, E01, E52, L11

Suggested Citation

Adler, Gustavo and Meleshchuk, Sergii and Osorio-Buitron, Carolina, Global Value Chains and External Adjustment: Do Exchange Rates Still Matter? (December 2019). IMF Working Paper No. 19/300, Available at SSRN: https://ssrn.com/abstract=3524319

Gustavo Adler (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Sergii Meleshchuk

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Carolina Osorio-Buitron

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
56
Abstract Views
231
rank
451,428
PlumX Metrics