Exchange Rate Regimes, Specialization and Trade Volume
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Michael B Devereux
We develop a general equilibrium monetary model of endogenous specialization and international trade to examine the degree of specialization and trade volume under alternative monetary systems, a multiple currency system with a flexible exchange rate and a common currency system. Where demand shocks are important, we demonstrate an increase in specialization, trade and welfare under the common currency relative to flexible exchange rates. The weaker the substitution between exports and imports or the greater the risk aversion, the stronger are these effects. Where supply shocks are important, the effects on specialization and trade are smaller and ambiguous in direction, though the welfare effects are comparable to those for demand shocks. Broadly speaking, the model's results are qualitatively consistent with the empirical results of Rose (2000), which finds an increase in trade due to the adoption of a common currency.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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- R&D Subsidies and the Surplus Appropriability Problem
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- On the Political Economy of Housing's Tax Status
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- How Does the New Keynesian Monetary Model Fit in the U.S. and the Eurozone? An Indirect Inference Approach
- Fertility Choice and Semi-Endogenous Growth: Where Becker Meets Jones
- Equilibrium Wage Dispersion: An Example
- Exchange Rate Regimes, Specialization and Trade Volume
- A Refinement in the Specification of Empirical Macroeconomic Models as an Extension to the EBA Procedure
- Education, Growth, and Redistribution in the Presence of Capital Flight
- Measuring the Dissemination of Volatility across Levels of Development
Articles in the same Issue
- Topics Article
- Counter-Cyclical and Counter-Inflation Monetary Policy Rules and Comovement Properties of Money Growth
- Hicks Neutral Technical Change Revisited: CES Production Function and Information of General Order
- R&D Subsidies and the Surplus Appropriability Problem
- Literacy and Growth
- The Fed's Preference for Policy Rate Smoothing: Overestimation Due to Misspecification?
- Inflation Targeting in Western Europe
- On the Political Economy of Housing's Tax Status
- Rating Agencies and Sovereign Debt Rollover
- How Does the New Keynesian Monetary Model Fit in the U.S. and the Eurozone? An Indirect Inference Approach
- Fertility Choice and Semi-Endogenous Growth: Where Becker Meets Jones
- Equilibrium Wage Dispersion: An Example
- Exchange Rate Regimes, Specialization and Trade Volume
- A Refinement in the Specification of Empirical Macroeconomic Models as an Extension to the EBA Procedure
- Education, Growth, and Redistribution in the Presence of Capital Flight
- Measuring the Dissemination of Volatility across Levels of Development
