Export Dynamics in Large Devaluations
George Alessandria Sangeeta Pratap Vivian Yue
Federal Reserve Bankof PhiladelphiaHunter College & Graduate CenterCity University of New YorkBoard of Governors of the Federal Reserve System
We study the source and consequences of sluggish export dynamics in emerging marketsfollowing large devaluations. We document two main features of exports that are puzzlingfor standard trade models. First, given the change in relative prices, exports tend to growgradually following a devaluation. Second, high interest rates tend to suppress exports.To address these features of export dynamics, we embed a model of endogenous exportparticipation due to sunk and per period export costs into an otherwise standard small openeconomy. In response to shocks to productivity, the interest rate, and the discount factor,we …nd the model can capture the salient features of export dynamics documented. At theaggregate level, the features giving rise to sluggish exports lead to more gradual net exportreversals, sharper contractions and recoveries in output, and endogenous stagnation in laborproductivity.
Export Dynamics, Devaluation, Net Exports.
Alessandria: Federal Reserve Bank of Philadelphia, Ten Independence Mall, Philadelphia, PA19106 (email@example.com); Pratap: Department of Economics, Hunter College and theGraduate Center City University of New York Room 695 Park Ave, New York, NY 10065(firstname.lastname@example.org); Yue: Federal Reserve Board of Governors, 20th and Constitution Ave,Washington DC 20551 (email@example.com). We thank Luigi Bocola, Svetlana Chekmasova, and OscarPuente for excellent research assistance. We also thank Costas Arkolakis, Ariel Burstein, Lukasz Drozd,Brent Neiman, Francesco Pappada, John Romalis, Kim Ruhl, Mike Sposi, and the participants at the At-lanta Fed-NYU confererence, BU, ECB-Bank of Canada Workshop on Exchange Rates, New York Fed,NYU, Federal Reserve Board, Paris School of Economics, HEC-Montreal, INSEAD, IMF, ITAM, Ohio StateUniversity, Richmond Fed, Stonybrook, Tsinghua Macro Workshop, Econometric Society Annual meeting,LACEA-IDB-CAF Trade, Integration, Growth Conference, American Economic Annual Meeting, and theSociety of Economic Dynamics Annual Meeting. We are grateful to Lorenza Martinez and Kensuke Teshimafor the use of Mexican customs data. The views expressed herein are those of the authors and should not beinterpreted as re‡ecting the views of the Federal Reserve Bank of Philadelphia or the Board of Governors orany other person associated with the Federal Reserve System.
This paper is available free of charge at www.philadelphiafed.org/research-and-data/publications/working-papers/.