IMF Working Papers Volume 2015 Issue 199: Demand for Value Added and Value-Added Exchange Rates (2015)

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Demand for Value Added and Value-Added Exchange Rates

Author:

Mr. Rudolfs Bems

Mr. Rudolfs Bems
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Robert C. Johnson

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Series:: IMF Working Papers

Volume/Issue:: Volume 2015: Issue 199

Language:: English

Publication Date:: 08 Sep 2015

DOI:: https://doi.org/10.5089/9781513595047.001

ISBN:: 9781513595047

ISSN:: 1018-5941

Pages:: 70

Keywords:: WP; real value; Real effective exchange rate; global supply chains; Armington-REER index; value-added REER; REER weight; demand system; production elasticity; Armington-REER framework; weight difference; Armington-REER change; changes in the Armington-REER; Real effective exchange rates; Demand elasticity; Competition; Exchange rates; Exports; Global; Asia and Pacific

Legal-disclaimer:: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Series:: IMF Working Papers

Volume/Issue:: Volume 2015: Issue 199

Language:: English

Publication Date:: 08 Sep 2015

DOI:: https://doi.org/10.5089/9781513595047.001

ISBN:: 9781513595047

ISSN:: 1018-5941

Pages:: 70

Keywords:: WP; real value; Real effective exchange rate; global supply chains; Armington-REER index; value-added REER; REER weight; demand system; production elasticity; Armington-REER framework; weight difference; Armington-REER change; changes in the Armington-REER; Real effective exchange rates; Demand elasticity; Competition; Exchange rates; Exports; Global; Asia and Pacific

Legal-disclaimer:: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

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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.

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IMF Working Papers

ISSN:: 1018-5941

Publisher:: International Monetary Fund

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