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EXCHANGE RATE REGIMES AND TRADE
Author(s) -
ADAM CHRISTOPHER,
COBHAM DAVID
Publication year - 2007
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2007.01037.x
Subject(s) - economics , exchange rate , international economics , de facto , exchange rate regime , float (project management) , gravity model of trade , currency union , trade barrier , monetary economics , tariff , international free trade agreement , management , political science , law
A ‘new version’ of the gravity model is used to estimate the effect of a full range of de facto exchange rate regimes on bilateral trade. The results indicate that, while participation in a common currency union is typically strongly ‘pro‐trade’, other exchange rate regimes which lower the exchange rate uncertainty and transactions costs associated with international trade are significantly more pro‐trade than the default regime of a ‘double float’. They suggest that the direct and indirect trade‐creating effects of these regimes on uncertainty and transactions costs tend to outweigh the trade‐diverting substitution effects. Tariff‐equivalent monetary barriers associated with each exchange rate regime are also calculated.