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Trade Margins And Exchange Rate Regimes: Evidence From A Panel Varx, Lilia Cavallari, Stefano Daddona

Lilia Cavallari

This paper studies output and trade margin dynamics in the aftermath of external shocks in fixed and floating exchange rate regimes. Using a panel VARX model, it traces the mean responses of output, terms of trade, extensive and intensive margins to real and nominal shocks in 22 developed economies over the period 1988-2011. It clarifies the role of trade margins for the transmission of shocks. A business cycle expansion abroad implies positive output spillovers through the trade channel in any exchange rate regime. Yet in the sample of peggers, there is a switch from trade of previously traded goods towards …