Value-Added Exchange Rates

Bems, Rudolfs; Johnson, Robert C.

doi:10.3386/w18498

Cited by 64 publications

(90 citation statements)

References 11 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…For example, Bems and Johnson (2012) argue for recognition of the growing importance of vertical specialization and global value chains. To improve the performance of the REER, they derive a value-added REER and advocate the use of GDP deflators and trade measured in value-added terms.…”

mentioning

confidence: 99%

What Drives the Market Share Changes? Price versus Non-Price Factors

Beņkovskis

Wörz

2013

SSRN Journal

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in EconStor may PriCe verSuS non-PriCe FaCtorS Konstantins Benkovskis and Julia WörzIn 2014 all ECB publications feature a motif taken from the €20 banknote.note: This Working Paper should not be reported as representing the views of the European Central Bank (ECB). The views expressed are those of the authors and do not necessarily reflect those of the ECB. ABSTRACTThe paper proposes a theoretical framework for explaining gains and losses in export market shares by considering both price and non-price determinants. Starting from a demand-side model à la Armington (1969), we relax several restrictive assumptions to evaluate the contribution of unobservable changes in taste and quality, taking into account differences in elasticities of substitution across product markets. Using highly disaggregated trade data from UN Comtrade, our empirical analysis for the major world exporters (G7 and BRIC countries) reveals the dominant role of non-price factors in explaining the competitive gains of BRIC countries and concurrent decline in the G7's share of world exports. JEL classification C43, F12, F14, L15Keywords export market share decomposition, non-price competitiveness, real effective exchange rate 2 NON-TECHNICAL SUMMARYExport market shares and the real effective exchange rate (REER) are, perhaps, the two most popular indicators in order to assess a country's competitiveness on a macro level. Both indicators are extensively used in the policy analysis for obvious reasons: The calculation of changes in export market shares is easy and straightforward, while the REER, although being computationally more demanding, can serve as a comprehensive measure of a country's price and cost competitiveness, thus providing some insights about the causes of export performance.However, both indicators are also limited by serious drawbacks: Gains or losses in market shares only describe an outcome, while the driving forces behind underlying changes in competitiveness remain uncovered.The REER, while providing some information with respect to competitiveness, is at the same time limited by its narrowness, as only price factors are taken into account. In practice, the REER cannot fully explain changes in external competitiveness. This becomes especially apparent in the context of emerging countries, where strong export performance often goes hand in hand with an appreciation of the REER, thus suggesting a loss in price competitiveness. The disregard o...

show abstract

mentioning

confidence: 99%

What Drives the Market Share Changes? Price versus Non-Price Factors

Beņkovskis

Wörz

2013

SSRN Journal

View full text Add to dashboard Cite

show abstract

“…From 1990 WARP appreciated by 12.9% versus a 9% depreciation according to divisia. The divisia index computed using the PPP of output from PWT v8.0 is very similar to that using expenditure-based PPP, and also very similar to the index which uses World Bank GDP deflators, as employed in the construction of value-added exchange rates (Bems andJohnson, 2012, andBayoumi et al, 2013).…”

Section: Post-war Warp For the United Statesmentioning

confidence: 67%

“…Bems and Johnson (2012) show that for the US, the differences in trade shares using value-added measures of trade seems to make little difference. 17 For example, they find that the US trade share with China shrinks by just -.2% in 2005 when they use value-added measures of trade as compared with aggregate trade (ex-oil).…”

Section: Trade Weights: Fixed Import and Export Share Weights Vs Adjmentioning

confidence: 99%

Measurement matters: Productivity-adjusted weighted average relative price indices

Campbell

2016

Journal of International Money and Finance

View full text Add to dashboard Cite

Commonly used trade-weighted real exchange rate indices are computed as indicesof-indices, and thus do not adequately account for growth in trade with developing countries. Weighted Average Relative Price (WARP) indices solve this problem but do not control for productivity differences, as developing countries are observed to have lower price levels via the Penn Effect. I remedy these problems in two ways. First I propose a Penn Effect productivity adjustment to Weighted Average Relative Price indices (P-WARP). Secondly, I introduce a Weighted Average Relative Unit Labor Cost index (WARULC) for manufacturing and show that this measure does a much better job predicting trade imbalances and declines in manufacturing employment than the IMF's Relative ULC measure created as an index-of-indices. The new series reveal that for many countries currently mired in liquidity traps, relative prices reached historic highs heading into the financial crisis of 2008. I document that in 2002 -during the surprisingly sudden collapse in US manufacturing -US relative prices had not been that high relative to trading partners since the worst year of the Great Depression.JEL Classification: F10, F31, N70, C43

show abstract

“…Then, GVCs should be incorporated into REER by measuring trades and prices in value added not in gross terms. Bems and Johnson () suggest a new measurement of value‐added REER, which are differentiated from the conventional ones in two ways. They use trade in value added instead of gross trade flows, and price changes are measured using prices of real value added (GDP deflators) instead of consumer prices.…”

Section: Introductionmentioning

confidence: 99%

Global value chain and its impact on the linkage between exchange rate and export: Cases of China, Japan and Korea

Bang

Park

2017

World Economy

View full text Add to dashboard Cite

The link between exchange rate and trade has been studied for a long time, but there is no consensus about their relation. This paper tests the old argument, whether depreciation of real effective exchange rates (REERs) raises exports. We differentiate the test with earlier studies by employing a new measurement of REER and incorporating the effect of GVCs. We measured REER at industry level with value‐added trade weights. We analysed the topic with LSDV and system GMM for China, Japan and Korea since these counties are known to participate actively in GVCs. Our main finding is that exchange rate has significant impact on trade for three countries. However, the movement of elasticity of export to REER varies by country. While the elasticity in China decreased over time, Korea and Japan experienced increasing patterns between mid‐1990s and mid‐2000s and decreasing trends afterwards. This study also tests whether the level of incorporation in GVCs causes a change in elasticity. The results show that growing participation in GVCs lowers the elasticity of export to REER in absolute value. However, this result is only statistically significant in Korea.

show abstract

Value-Added Exchange Rates

Cited by 64 publications

References 11 publications

What Drives the Market Share Changes? Price versus Non-Price Factors

What Drives the Market Share Changes? Price versus Non-Price Factors

Measurement matters: Productivity-adjusted weighted average relative price indices

Global value chain and its impact on the linkage between exchange rate and export: Cases of China, Japan and Korea

Contact Info

Product

Resources

About