Global Value Chains and Effective Exchange Rates at the Country-Sector Level
The real effective exchange rate (REER) is one of the most cited statistical constructs in open-economy macroeconomics. We show that the models used to compute these numbers are not rich enough to allow for the rising importance of global value chains. Moreover, because different sectors within a country participate in international production sharing at different stages, sector level variations are also important for determining competitiveness. Incorporating these features, we develop a framework to compute REER at both the sector and country level and apply it on inter-country input-output tables to study the properties of the new measures of REER for 35 sectors in 40 countries.
We are grateful to George Alessandria, Pol Antras, Michael Devereux, Charles Engel, Enisse Kharroubi, Giovanni Lombardo, Stephanie Schmitt-Grohe, Hyun Song Shin, Christian Upper, Martin Uribe and our discussants Martin Berka, Beata Javorcik, Ayako Saiki and Giorgio Valente, as well as participants in various seminars and conferences for helpful comments and discussions. The views expressed here are those of the authors and do not necessarily correspond to those of the institutions they are affiliated with, nor those of the National Bureau of Economic Research.
NIKHIL PATEL & ZHI WANG & SHANG‐JIN WEI, 2019. "Global Value Chains and Effective Exchange Rates at the Country‐Sector Level," Journal of Money, Credit and Banking, vol 51(S1), pages 7-42. citation courtesy of