Title: Fixed exchange rates and trade
First published: 2004
Description: "A classic argument for a fixed exchange rate is its promotion of trade.  Empirical support for this, however, is mixed.  While one branch of research consistently shows a small negative effect of exchange rate volatility on trade, another, more recent, branch presents evidence of a large positive impact of currency unions on trade.  This paper helps resolve this disconnect.  Our results, which use a new data-based classification of fixed exchange rate regimes, show a large, significant effect of a fixed exchange rate on bilateral trade between a base country and a country that pegs to it.  Furthermore, the web of fixed exchange rates created when countries link to a common base also promotes trade, but only when these countries are part of a wider system, as during the Bretton Woods period.  These results suggest an economically relevant role for exchange rate regimes in trade determination since a significant amount of world trade is conducted between countries with fixed exchange rates"--National Bureau of Economic Research web site.
Subjects: Foreign exchange rates, Foreign trade promotion
LC classification: HB1