Exchange rates movements are again attracting a lot of attention as a focal point in the policy debate. Prolonged recession following the global financial crisis has pushed most advanced economies into liquidity traps where domestic monetary policy is severely limited. The exchange rate offers an alternative option for boosting aggregate demand in a liquidity trap. However, the exchange rate channel may have global repercussions through spillover effects on international goods and financial markets. Emerging market policymakers, in particular, have raised warnings about excessive exchange rate movements arising from advanced economy stimulus. A further risk arises from the exchange rate implications of US monetary policy `normalization’. This conference hopes to bring together new empirical and theoretical research on all aspects of exchange rates, their role in domestic macroeconomic policy as well as the global trade and financial system.

Swarnali Ahmed Hannan, Maximiliano Appendino, Michele Ruta, 27 August 2015

The export-less depreciation of the yen has opened a debate on the power of exchange rates to boost exports. This column presents new evidence on how the exchange rate elasticity of exports has changed over time and across countries, and how global value chains have affected it. The upshot is that greater integration in global value chains makes exports substantially less responsive to exchange rate depreciations.


CEPR Policy Research