trade, and production across countries. We find that 20-30% of the decline in U.S. and EU final demand was borne by foreign countries, with NAFTA

A common view is that cross-border vertical linkages played a key role in the 2008-2009 collapse of global trade. This paper presents two accounting results from a global input-output framework that shed light on this channel. We feed in observed changes in final demand and find that trade in final goods fell by twice as much as trade in intermediate goods. Nevertheless, intermediate goods account for more than two-fifths of the trade collapse. We also find that vertical specialization trade fell 13 percent, while value-added trade fell by 10 percent, because declines in demand were largest in highly vertically-specialized sectors.

The External Balance Assessment (EBA) methodology has been developed by the IMF's Research Department as a successor to the CGER methodology for assessing current accounts and exchange rates in a multilaterally consistent manner. Compared to other approaches, EBA emphasizes distinguishing between the positive empirical analysis and the normative assessment of current accounts and exchange rates, and highlights the roles of policies and policy distortions. This paper provides a comprehensive description and discussion of the 2013 version ("2.0") of the EBA methodology, including areas for its further development.

NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

This paper updates the conceptual foundations for measuring real effective exchange rates (REERs) to allow for vertical specialization in trade. We derive a value-added REER describing how demand for the value added that a country produces changes as the price of its value added changes relative to competitors. We then compute this index for 42 countries from 1970-2009 using trade measured in value added terms and GDP deflators. There are substantial differences between value-added and conventional REERs. For example, China's value-added REER appreciated by 20 percentage points more than the conventional REER from 2000-2009. These differences are driven mainly by the theorymotivated shift in prices used to construct the value-added REER, not changes in bilateral weights.

No abstract

We examine the role of cross-border input linkages in governing how international relative price changes influence demand for domestic value added. We define a novel value-added real effective exchange rate (REER), which aggregates bilateral value-added price changes, and link this REER to demand for value added. Input linkages enable countries to gain competitiveness following depreciations by supply chain partners, and hence counterbalance beggar-thy-neighbor effects. Cross-country differences in input linkages also imply that the elasticity of demand for value added is country specific. Using global input-output data, we demonstrate these conceptual insights are quantitatively important and compute historical value-added REERs. JEL Classification Numbers: F1, F4

We examine how cross-border input linkages shape the response of demand for value added to international relative price changes. We define a novel value-added real effective exchange rate (REER), which aggregates bilateral value-added price changes. Spillovers via input linkages lower the sensitivity of the value-added REER to price changes by supply chain partners because they counterbalance demand-side expenditure switching. Input linkages also raise the price elasticity of demand relative to the conventional REER framework, making demand more sensitive to REER changes. Using global input-output data, we demonstrate that these conceptual insights are quantitatively important in a case study of European competitiveness. (JEL E31, F23, F31, L14)