Trade and currency weapons

Abstract

We estimate the elasticities of exports to tariffs and to the real exchange rate within the same specification, allowing for a direct comparison.We find that tariffs have significantly more impact on exports than the real exchange rate, invalidating the symmetry assumption often made in macroeconomic models.From the point of view of short-term stabilization, tariffs and monetary policy can be considered as partly substitutes.Monetary policy is more stabilizing due to its internal transmission channels; at the zero lower bound, though, there is an incentive to use tariffs for macroeconomic stabilization.In normal times, a governement will more likely react to a trade "agression" through monetary rather than through trade retaliation.

Exchange rate effects on China's exports: Product sophistication and exchange rate elasticity

“…Bénassy‐Quéré et al (2021) estimated the exchange rate elasticity of exports by adding the natural logarithm of the BRER of economy i against economy j ,: …”

“…The exchange rate elasticity measures the percentage change in exports in response to the percentage change in the exchange rate. Bénassy‐Quéré et al (2021) summarized the exchange rate elasticities reported in several papers. In one study that they cited, Leigh et al (2017) investigated the exchange rate elasticities of exports for a large set of countries.…”

“…In a fourth study, Berthou and Dhyne (2018), using a cross‐country micro‐based dataset of exporters of 11 European countries, found that a 10% REER appreciation reduces the value of exports in euros on average by between 5% and 8%. In their own study, Bénassy‐Quéré et al (2021) used product‐level data in current dollars for trade between 110 countries over the 1989–2013 period and reported that a 1% RER depreciation increases exports by 0.5%.…”

“…They also summarized the exchange rate elasticity measurements and results reported in other papers. These studies revealed a statistically significant and negative effect of appreciations on exports (Bénassy‐Quéré et al, 2021; Berman et al, 2012; Berthou & Dhyne, 2018; Bussière et al, 2020; Leigh et al, 2017). To build on these findings, we use the export products' sophistication levels measured by the PCI.…”

China’s exports in a protectionist world

“…We follow the approach of Bénassy-Quéré et al (2021) in investigating the relationship between exports, tariffs and exchange rates. They represented the exports of country i to country j of product p in year t, 𝑋 𝑖𝑗𝑝𝑡 with a series of fixed effects terms:…”