Premium
Bilateral Exchange Rates and Jobs
Author(s) -
Bekkers Eddy,
Francois Joseph
Publication year - 2014
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12107
Subject(s) - economics , small open economy , unemployment , open economy , liberian dollar , exchange rate , currency , balance of trade , core (optical fiber) , monetary economics , international economics , macroeconomics , materials science , finance , composite material
We study the labor market effects of realignment in fixed bilateral exchange rates, such as C hina's peg to the US dollar. We employ the open economy model by de Melo and Robinson to identify the core parameters of the real, trade side of the economy driving the unemployment effects of bilateral exchange rate realignment. A small open economy version of the model is explored analytically and a large multicountry version numerically. Analytics in the small open economy model show that unemployment effects of adjusting of a bilateral peg hinge on the fraction exported to and imported from the trading partner. A larger fraction exported to and a smaller fraction imported from the trading partner make it more likely that revaluation of a trading partner's currency has beneficial effects. Numerics in the large economy model show that C hinese revaluation can generate both positive and negative unemployment effects depending upon underlying parameter values. Adverse unemployment effects can go along with an improving trade balance.