This paper investigates the heterogeneous response of exporters to real exchange rate ‡uctua-tions due to product quality. We model theoretically the e¤ects of real exchange rate changes on the optimal price and quantity responses of …rms that export multiple products with heterogeneous levels of quality. The model shows that the elasticity of demand perceived by exporters decreases with a real depreciation and with quality, leading to more pricing-to-market and to a smaller response of export volumes to a real depreciation for higher quality goods. We test empirically the predictions of the model by combining a unique data set of highly disaggregated Argentinean …rm-level wine export values and volumes between 2002 and 2009 with experts wine ratings as a measure of quality. In response to a real depreciation, we …nd that …rms signi…cantly increase more their markups and less their export volumes for higher quality products, but only when exporting to high income destination countries. These …ndings remain robust to di¤erent measures of quality, samples, speci…cations, and to the potential endogeneity of quality.JEL Classi…cation: F12, F14, F31

In 2007 all ECB publications feature a motif taken from the €20 banknote. WO R K I N G PA P E R S E R I E S N O 7 9 0 / A U G U S T 2 0 0 71 We are grateful to Harald Uhlig for helpful suggestions and advice at various stages of this paper, and to Thierry Bracke, Matthieu Bussière, Mike Clements, Valentina Corradi, Luca Dedola, Michael Ehrmann, Martin Ellison, Charles Engel, Mathias Hoffmann, Steven Kamin, Gian Maria Milesi-Ferretti, Gernot Müller, John Rogers, Rasmus Rüffer, Roland Straub, Ilias Tsiakas, Jeromin Zettelmeyer and seminar Abstract This paper analyses the role of asset prices in comparison to other factors, in particular exchange rates, as a driver of the US trade balance. It employs a Bayesian structural VAR model that requires imposing only a minimum of economically meaningful sign restrictions. We …nd that equity market shocks and housing price shocks have been major determinants of the US current account in the past, accounting for up to 32% of the movements of the US trade balance at a horizon of 20 quarters. By contrast, shocks to the real exchange rate have been much less relevant, explaining less than 7% and exerting a more temporary e¤ect on the US trade balance. Our …ndings suggest that sizeable exchange rate movements may not necessarily be a key element of an adjustment of today's large current account imbalances, and that in particular relative global asset price changes could be a more potent source of adjustment.Keywords: current account; global imbalances; exchange rates; Bayesian VAR; sign restrictions.JEL Classi…cation: F32; F40; C30. ECB Working Paper Series No 790 August 2007Non-technical summaryThe debate about the origins and causes of today's large global current account imbalances continues to be highly contoversial. One camp of this debate points at the US as the culprit, and in particular at its low private and public savings, while others argue that it is a "saving glut"in Asia and among oil-exporting countries that has been the key driver of rising current account dispersions. Moreover, a number of scholars and policy makers have given central stage to the need for a large exchange rate depreciation to increase US exports and, hence, reduce its trade and current account de…cits. In general, however, there is no clear-cut empirical evidence so far showing that exchange rates have been a major driver of current account positions for advanced economies.By contrast, other scholars have pointed at the relevance of asset prices for the current account determination and adjustment through wealth e¤ects. The underlying logic is that a rise in asset prices (in particular if it is expected to be permanent) increases expected income of households and, therefore, increases their consumption.Indeed, one striking feature of the global economy over the past 15 years has been the pronounced cycles and booms in asset prices. US equity prices have risen by almost 500% and non-US stock prices by more than 200% between 1990 and 2000, before losing about one third of their value in the ...

The run-up in oil prices since 2004 coincided with growing investment in commodity markets and increased price comovement among di¤erent commodities. We assess whether speculation in the oil market played a role in driving this salient empirical pattern. We identify oil shocks from a large dataset using a factor-augmented vector autoregressive (FAVAR) model. This method is motivated by the fact that a small scale VAR is not infomationally su¢ cient to identify the shocks. The main results are as follows: (i) While global demand shocks account for the largest share of oil price ‡uctuations, speculative shocks are the second most important driver. (ii) The comovement between oil prices and the prices of other commodities is mainly explained by global demand shocks. (iii) The increase in oil prices over the last decade is mainly driven by the strength of global demand. However, speculation played a signi…cant role in the oil price increase between 2004 and 2008 and its subsequent collapse. Our results support the view that the recent oil price increase is mainly driven by the strength of global demand but that the …nancialization process of commodity markets also played a role.

SummaryThe run‐up in oil prices since 2004 coincided with growing investment in commodity markets and increased price co‐movement among different commodities. We assess whether speculation in the oil market played a role in driving this salient empirical pattern. We identify oil shocks from a large dataset using a dynamic factor model. This method is motivated by the fact that a small‐scale vector autoregression is not informationally sufficient to identify the shocks. The main results are as follows. (i) While global demand shocks account for the largest share of oil price fluctuations, speculative shocks are the second most important driver. (ii) The increase in oil prices over the last decade is mainly driven by the strength of global demand. However, speculation played a significant role in the oil price increase between 2004 and 2008 and its subsequent collapse. (iii) The co‐movement between oil prices and the prices of other commodities is mainly explained by global demand shocks. Our results support the view that the recent oil price increase is mainly driven by the strength of global demand but that the financialization process of commodity markets also played a role. Copyright © 2014 John Wiley & Sons, Ltd.

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