Working Paper: CEPR ID: DP1041
Authors: Andre Sapir; Khalid Sekkat; Axel A. Weber
Abstract: The impact of exchange rate fluctuations on international trade has long been a major concern for policy-makers. This is particularly the case in Europe, where countries trade extensively with each other. The crisis that began in the Summer of 1992 generated increased exchange rate fluctuations and, therefore, renewed concerns about consequences for trade inside the European Union. This report assesses the likely impact of the exchange rate crisis on trade flows inside and outside the Union. The analysis indicates the need to distinguish between short-term oscillations (i.e. volatility) and medium-term fluctuations (i.e. misalignment). We find that the recent ERM crisis is likely to have had some negative impact on trade within the region, but this impact is probably quite small.
Keywords: exchange rates; volatility; misalignments; trade; EMS
JEL Codes: F12; F31; L16
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| exchange rate misalignment (F31) | trade volumes (F10) |
| exchange rate volatility (F31) | trade volumes (F10) |
| exchange rate changes (F31) | trade flows (F10) |
| ERM crisis (H12) | intra-EU trade (F19) |
| exchange rate misalignment (F31) | trade flows between ERM and non-ERM countries (F14) |
| September 1992 crisis (H12) | sensitivity of trade to exchange rate changes (F31) |