Demand for Value Added and Value-Added Exchange Rates
65 Pages Posted: 6 Apr 2015 Last revised: 27 Jan 2023
There are 2 versions of this paper
Demand for Value Added and Value-Added Exchange Rates
Date Written: April 2015
Abstract
We examine the role of cross-border input linkages in governing how international relative price changes influence demand for domestic value added. We define a novel value-added real effective exchange rate (REER), which aggregates bilateral value-added price changes, and link this REER to demand for value added. Input linkages enable countries to gain competitiveness following depreciations by supply chain partners, and hence counterbalance beggar-thy-neighbor effects. Cross-country differences in input linkages also imply that the elasticity of demand for value added is country specific. Using global input-output data, we demonstrate these conceptual insights are quantitatively important and compute historical value-added REERs.
Suggested Citation: Suggested Citation