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Exchange Rate Regimes And Trade

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  • CHRISTOPHER ADAM
  • DAVID COBHAM

Abstract

A ‘new version’ of the gravity model is used to estimate the effect of a full range of de facto exchange rate regimes on bilateral trade. The results indicate that, while participation in a common currency union is typically strongly ‘pro‐trade’, other exchange rate regimes which lower the exchange rate uncertainty and transactions costs associated with international trade are significantly more pro‐trade than the default regime of a ‘double float’. They suggest that the direct and indirect trade‐creating effects of these regimes on uncertainty and transactions costs tend to outweigh the trade‐diverting substitution effects. Tariff‐equivalent monetary barriers associated with each exchange rate regime are also calculated.

Suggested Citation

  • Christopher Adam & David Cobham, 2007. "Exchange Rate Regimes And Trade," Manchester School, University of Manchester, vol. 75(s1), pages 44-63, September.
    • Handle: RePEc:bla:manchs:v:75:y:2007:i:s1:p:44-63
    DOI: 10.1111/j.1467-9957.2007.01037.x
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F49 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Other

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