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Exchange rate and trade dynamics

Exchange rate and trade dynamics. Peter BEKX European Commission Gen è ve, 27 March 2012. Outline. Global imbalances pose an increasing threat to global economic stability, again Empirical studies show that exchange rates do matter

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Exchange rate and trade dynamics

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  1. Exchange rate and trade dynamics Peter BEKX European Commission Genève, 27 March 2012

  2. Outline • Global imbalances pose an increasing threat to global economic stability, again • Empirical studies show that exchange rates do matter • Experiences in advanced and emerging Europe show that policy changes are needed to address imbalances • Conclusions

  3. Global imbalances are returning

  4. XR misalignments

  5. Empirical analysis •  Macroeconomic trade equations for exports and imports • Export equation: • Import equation: •  General equilibrium model simulations

  6. Euro area current account

  7. Real effective exchange rates and catching-up Source: IMF IFS and World Bank GDF

  8. Emerging Europe: improving export performance while facing appreciation Source: ECFIN Economic Paper no 366, March 2009

  9. Conclusions • Exchange rates do matter • And should form part of the solution • But policy changes in other fields are as much part of the solution Economic integration can support the necessary structural reforms

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