Dollar Invoicing, Global Value Chains, and the Business Cycle Dynamics of International Trade

February 11, 2022

Preview Citation

Format: Chicago

David Cook, and Nikhil Patel. Dollar Invoicing, Global Value Chains, and the Business Cycle Dynamics of International Trade, (USA: International Monetary Fund, 2022) accessed November 21, 2024

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.

Summary

Recent literature has highlighted that international trade is mostly priced in a few key vehicle currencies and is increasingly dominated by intermediate goods and global value chains (GVCs). Taking these features into account, this paper reexamines the relationship between monetary policy, exchange rates and international trade flows. Using a dynamic stochastic general equilibrium (DSGE) framework, it finds key differences between the response of final goods and GVC trade to both domestic and foreign shocks depending on the origin and ultimate destination of value added and the intermediate shipments involved. For example, the model shows that in response to a dollar appreciation triggered by a US interest rate increase, direct bilateral trade between non-US countries contracts more than global value chain oriented trade which feeds US final demand, and exports to the US decline much more when measured in gross as opposed to value added terms. We use granular data on GVCs at the sector level to document empirical evidence in favor of these key predictions of the model.

Subject: Currencies, Exports, Global value chains, Globalization, Imports, International trade, Money, Trade balance

Keywords: Aggregate exchange rate passthrough, Business cycle dynamics, Currencies, Dollar invoicing, Dollar invoicing, East Asia, EU exporter, EU importer, Exchange rates, Export platform, Exports, Global, Global value chains, Global value chains, Goods trade, Gross export, Imports, Interest rate shock, Monetary policy, Trade balance

Publication Details

Pages:

46
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2022/028
Stock No:

WPIEA2022028
ISBN:

9798400202483
ISSN:

1018-5941

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