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Staff Working Paper/Document de travail du personnel 2019-17
Estimating the Effect of Exchange Rate Changes on Total Exports
by Thierry Mayer and Walter Steingress
ISSN 1701-9397 © 2019 Bank of Canada
Bank of Canada Staff Working Paper 2019-17
May 2019
Estimating the Effect of Exchange Rate Changes on Total Exports
by
Thierry Mayer1 and Walter Steingress2
1 Département d’économie Sciences Po
Paris, France 75007 [email protected]
2 International Economic Analysis Department
Bank of Canada Ottawa, Ontario, Canada K1A 0G9
i
Acknowledgements
We would like to thank Joshua Aizenman, Enrique Alberola, Raphael Auer, Ariel Burstein, Guillaume Gaulier, Philippe Martin and Fabrizio Zampolli for their useful comments and suggestions. Special thanks to our discussants Fernando Pérez-Cervantes and Mike Waugh. This research has received funding from the European Research Council (ERC) under the Grant Agreement No. 313522. The views expressed in this paper are those of the authors and do not necessarily reflect those of the Bank of Canada.
ii
Abstract
This paper shows that real effective exchange rate (REER) regressions, the standard approach for estimating the response of aggregate exports to exchange rate changes, imply biased estimates of the underlying elasticities. We provide a new aggregate regression specification that is consistent with bilateral trade flows micro-founded by the gravity equation. This theory-consistent aggregation leads to unbiased estimates when prices are set in an international currency as postulated by the dominant currency paradigm. We use Monte-Carlo simulations to compare elasticity estimates based on this new “ideal-REER” regression against typical regression specifications found in the REER literature. The results show that the biases are small (around 1 percent) for the exchange rate and large (around 10 percent) for the demand elasticity. We find empirical support for this prediction from annual trade flow data. The difference between elasticities estimated on the bilateral and aggregate levels reduces significantly when applying an ideal-REER regression rather than a standard REER approach.
Bank topics: Econometric and statistical methods; Exchange rates; International topics JEL codes : F11, F12, F31, F32
Résumé
La présente étude montre que l’approche couramment employée pour estimer l’incidence des variations du taux de change sur les exportations totales, qui se base sur des régressions du taux de change effectif réel (TCER), implique des estimations biaisées des élasticités sous-jacentes. Nous proposons une nouvelle spécification reposant sur des régressions agrégées qui est compatible avec une dérivation des flux commerciaux bilatéraux par le modèle de gravité. Conforme à la théorie, cette approche débouche sur des estimations non biaisées lorsque les prix sont établis dans une monnaie internationale, soit la monnaie de l’économie dominante dans les échanges. Les auteurs utilisent la méthode de Monte-Carlo pour comparer les estimations des élasticités obtenues au moyen de ces nouvelles régressions d’un TCER dit « idéal » avec celles obtenues au moyen des spécifications communément utilisées dans les études impliquant le TCER. Les résultats indiquent que le biais est faible (autour de 1 %) pour le taux de change, et prononcé (autour de 10 %) pour l’élasticité de la demande. Ces observations sont confortées de manière empirique par les données sur les flux commerciaux annuels. L’écart entre les estimations des élasticités aux niveaux bilatéral et agrégé est bien moins important avec notre spécification qu’avec l’approche standard.
Sujets : Méthodes économétriques et statistiques; Taux de change; Questions internationales Codes JEL : F11, F12, F31, F32
Non-technical summary Regressions that explain total exports using real effective exchange rates (REER) are ubiquitous in applied policy work, but they are often based on incorrect aggregation of theory-consistent bilateral trade equations and lead to biased estimates of trade elasticities. Models calibrated with these elasticities will have predictions that are inaccurate by exaggerating the response of exports and, by extension, output following an exchange rate shock.
This paper shows that standard REER regressions produce biased results, documents the source of the bias and proposes a new alternative regression specification. Our specification is consistent with bilateral trade flows and micro-founded by the gravity equation. Total exports are a function of the real exchange rate and foreign demand deflated by the destination-specific price index, all denominated in the dominant international currency (i.e., the US dollar). Denominating prices according to the dominant currency paradigm (DCP) has the key implication that pass-through depends on the exchange rate variation relative to the international currency and not on the bilateral exchange rate. This allows us to split the change in the relative price between the exporter and the importer into two components each denominated in the international currency. This separation provides for theory-consistent aggregation and unbiased estimation of the trade and demand elasticities.
Simulations of the theoretical model imply that standard REER regressions lead to significant aggregation bias in the underlying elasticities. The bias in the trade elasticity is rather small (close to 1 percent), while the bias in the demand elasticity is more pronounced (close to 10 percent), and both increase with measurement errors.
We show that calibrating macroeconomic models with estimates obtained by using our new regression specification improves their fit and results in predictions consistent with microeconomic behavior in bilateral trade equations.
1 Introduction
Regressions that explain total exports with real effective exchange rates (REERs) are ubiquitous inapplied policy work,1 but their analytical structures are only loosely based on trade theory. Theseopen-economy “macro-level” regressions rely on monadic export equations where a country’s changein total exports is the dependent variable with the REER as the main variable of interest and an addi-tional control is considered for demand changes faced by the country. Despite considerable progressin the econometric aspects, the fundamental specification of McGuirk (1986), which derives its re-gression specification from Armington (1969), has remained virtually unchanged over the past fewdecades.2 During the same period, considerable progress has been made in modeling the “micro-level” foundations of dyadic (bilateral) trade equations, which are called gravity equations. A seminalpaper in the gravity literature is Anderson and Van Wincoop (2003), which is also based on Arming-ton (1969). In the gravity literature, little attention has been given to estimate the impact of changesin the exchange rate (see Anderson et al. (2016) as a notable exception).3 In this paper, we reconnectthe two strands of the literature.
We start by assessing whether the standard approach of monadic macro regression is compat-ible with the micro-founded gravity equation that predicts a very precise functional form for anestimation explaining bilateral flows. Similar to Imbs and Méjean (2015), our paper is methodolog-ical in that we seek to derive the appropriate monadic aggregation of bilateral flows and compareour new “ideal-REER” approach with typical regressions from the standard REER literature. Differ-ences arise due to the fact that the ideal-REER regression is based on proportional changes,4 whileMcGuirk (1986)’s REER is based on partial derivatives (log changes). In the standard REER regres-sion total exports are a log linear function of log changes of the real effective exchange rate and foreigndemand. On the other hand, the aggregate export equation that follows a structural gravity approachimplies a log-linear function of log changes in the real exchange rate (RER) and differences in foreigndemand deflated by the destination-specific price index. The standard REER approach constitutesan approximation, which holds for small changes, and causes an aggregation bias.
The aggregation of bilateral trade flows inherently depends on the currency denomination. Inour baseline gravity model, prices are set in a common international currency following the domi-
1Global projection models of central banks and international policy institutions (for example, Jakab et al. (2015)), theliterature on global VAR models (Di Mauro and Pesaran (2013)) as well as on global imbalances (see, among others, Ob-stfeld and Rogoff (2005) and Lane and Milesi-Ferretti (2012)) rely on REER equations and their elasticities to summarizethe trade linkages between the different regions in their model.
2Debate and progress in econometric aspects of such work is still ongoing, see Chinn (2006) for a primer on alterna-tive measures of REER. More recently, Bennett and Zarnic (2009) introduce product heterogeneity and services exports.Bayoumi et al. (2013) and Bems and Johnson (2017) construct REER indexes based on value-added trade to account forglobal value chains. Patel et al. (2017) build on Bayoumi et al. (2013) and Bems and Johnson (2017) to study how inputlinkages affect REER measurement in a multi-sector economy.
3Most of the interest has been geared towards measuring the impact of bilateral trade costs, such as regional tradeagreements (RTAs), tariffs and membership at the WTO. See Head and Mayer (2014) for an overview.
4Often referred to as exact hat algebra. See Arkolakis et al. (2012).
2
nant currency paradigm (DCP) as in Casas et al. (2017). DCP implies that the exchange rate variationrelative to the international (dominant) currency and not the bilateral exchange rate determines pass-through. As a result, we can split the relative price between the exporter and the importer into thesum of an exporter-specific (the RER) and an importer-specific component (foreign demand deflatedby the importer’s price index) each denominated in the international currency. This separation pro-vides for theory-consistent aggregation and unbiased estimation of the trade and demand elasticities.If prices are set in the producer’s currency (producer currency pricing (PCP)) or in the local currency(local currency pricing (LCP)), the pass-through depends on the bilateral exchange rate and estima-tion of the aggregate elasticities without bias is only possible if pass-through is complete. Extendingthe model to allow markups to vary across trading partners reduces the response of prices to theexchange rate change and lowers the bias in both the demand and the trade elasticities.
To reveal the importance of theory-consistent aggregation for parameter inference, we resort totheoretical model simulations and quantify how departures from the model’s strict form can generatebiases in trade and demand elasticity estimates. To that purpose, we use the Dekle et al. (2007) ver-sion of the structural gravity model (compatible with most of the commonly used theoretical modelsof international trade). Monte Carlo simulations show that while there is discordance between theideal-REER and standard REER regressions, the magnitude of the biases in elasticities are dependenton the precise regression specification as well as the underlying assumptions on the exchange rateshock. Overall, the bias in the trade (exchange rate) elasticity is rather small (close to 1 percent),while the bias in the demand elasticity is more pronounced (close to 10 percent) and increases withmeasurement errors. If, instead, we re-estimate the same specifications and denominate trade inthe producer currency, the aggregation bias increases significantly, the overall fit of the regressionis lower, the point estimates of the elasticities are smaller and the standard errors are larger in allspecifications.
Next, we build on the theoretical basis of our paper and compare the empirical performanceof our ideal-REER with the standard REER approach. We use annual bilateral trade and price datafor 25 countries that are part of the Bank for International Settlements (BIS) narrow effective ex-change rate indexes (see Klau and Fung (2006)) for the period 1964 to 2014. As a first step, we followBoz et al. (2017) and run exchange rate pass-through regressions to test (1) whether pass-through iscomplete, and (2) whether the pass-through depends on the currency denomination of export andimport prices. Our results show that, overall, pass-through is incomplete (with an average coeffi-cient of 0.16) and both exporter and importer prices vary mainly with the US dollar supporting thedominant currency paradigm. In the second step, we aggregate bilateral trade flows denominated inUS dollars and estimate the trade and demand elasticities for both the ideal-REER and the standardREER regression specifications following the DCP. Evidence based on the pooled sample across allcountries, in addition to country-specific regressions, corroborate the simulation results. The differ-ence between the elasticities estimated on the bilateral and the aggregate levels reduces significantlywhen applying an ideal-REER regression rather than the standard REER approach.
3
Taken together, these results highlight two additional advantages of the dominant currencyparadigm, which currently is the yardstick used in evaluating pricing and exchange rate pass-through(see Boz et al. (2017) and Casas et al. (2017)). First, DCP allows for consistent aggregation of micro-level founded bilateral trade equations with a minimum set of assumptions on the pricing behaviorand, second, the estimation performance of aggregate regressions improves significantly when de-nominating the variables in US dollars.
Our paper contributes to the macroeconomic literature on exchange rate indexes as a measureof price competitiveness. The REER is an important statistical indicator, produced by internationalagencies such as the IMF (see Bayoumi et al. (2005)), the BIS (see Klau and Fung (2006)) and manycentral banks (see Schmitz et al. (2011) for the ECB and Barnett et al. (2016) for the Bank of Canadareferences). We see our analysis as complementary to the recent papers that study the theoreticalfoundations for these indexes. These papers’ focus lies more in introducing global linkages into themeasurement of competitiveness (see Bayoumi et al. (2013), Patel et al. (2017) and Bems and Johnson(2017)). We show that using the REER to estimate the aggregate response of exports leads to biasedestimates of the underlying elasticities. The bias exists due to functional form assumptions, currencydenomination and inconsistent weighting of trade flows in the aggregation of bilateral trade flows.
Our analysis also speaks to the old macroeconomic literature on estimating trade elasticitiesstarted by Orcutt (1950), Houthakker and Magee (1969) and Goldstein et al. (1985) and recent con-tributions by Spilimbergo and Vamvakidis (2003), Freund and Pierola (2012), Bussière et al. (2014a)and Ahmed et al. (2016). All of these papers rely on effective exchange rates to estimate demand andtrade elasticities. Our results warrant caution in the use of these estimates for counterfactual policies,particularly in the case of the demand elasticity, where bias can be significant. As an alternative, wesuggest our ideal-REER regression framework to mitigate these concerns. These conclusions also ap-ply to studies that use aggregate time-series data to estimate exchange rate pass-through coefficientssuch as Campa and Goldberg (2005), Vigfusson et al. (2009) and Bussière et al. (2014b).
The remainder of the paper is structured as follows. Section 2 derives the gravity-compatibleaggregate export equation in the partial as well as in the general equilibrium. Section 3 describesthe standard empirical approaches used in the applied literature and discusses the functional formdifferences with respect to the gravity approach. Section 4 quantifies the biases of the different spec-ifications using Monte-Carlo simulations of partial as well as general equilibrium counterfactuals ofexchange rate shocks. Section 5 discusses the importance of the underlying pricing behavior andcurrency denomination. Section 6 introduces the data and provides empirical evidence on the keypredictions of our theoretical framework. Section 7 concludes.
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2 The gravity approach
We start with a description of the structural gravity equation based on Head and Mayer (2014) de-rived from the Armington model. The central feature of the Armington model is that it is not only atthe heart of the gravity equation literature but also forms the basis of the real exchange rate regres-sions as in Artus and McGuirk (1981), McGuirk (1986) and Spilimbergo and Vamvakidis (2003).
2.1 Structural gravity
Consider a world economy consisting of N countries. Each country is endowed with Qn units ofa distinct good. In each country, the representative agent has Constant Elasticity of Substitution(CES) preferences. Trade between countries is costly and takes the form of iceberg trade costs. Inorder to sell one unit of good i in country n, exporters from country i have to ship τni ≥ 1 units.Trade within the country is costless, i.e., τii = 1. To prevent arbitrage opportunities, we assumethat trading bilaterally between i and n is always cheaper than trading via an intermediate countryk ( τnkτki ≥ τni for ∀i, j, k). Note that given country i’s endowment Qi and total income Yi, we canexpress supply as Si = Yi/Qi, the corresponding producer price of good i as Pii = Si and the pricecharged to consumers in country n to be Pni = τniSi. Given our assumptions, the gravity equation isa product of the share of expenditure that importer n allocates on goods from exporter i, πni, and theoverall expenditure, Xn. Following Head and Mayer (2014), πni can be expressed in the followingmultiplicative separable form:
πni =Siφni
Φnwhere Φn =
N
∑`=1
(S`φn`) and Ωi =N
∑`=1
φ`iX`
Φ`, (1)
where φni captures the bilateral accessibility of n to exporter i and is a function of iceberg trade costs,Φn represents the multilateral resistance term and Ωi represents the weighted sum of the exportercapabilities.
In order to quantify potential estimation biases and to produce counterfactual simulation esti-mates of the structural gravity model, we need to specify the underlying supply structure. In thispaper, we opt for the Ricardian Comparative Advantage specification with intermediate inputs fromDekle et al. (2007) based on Eaton and Kortum (2002) and Alvarez and Lucas (2007). In this model,each country produces a large number of tradable intermediate goods that are homogeneous acrosscountries. Productivity z differs across goods and is assumed to follow a Fréchet distribution witha cumulative distribution function of exp(−Tiz−θ), where Ti is a technology parameter and θ deter-mines the amount of heterogeneity in the productivity distribution. For each intermediate good z,buyers choose the lowest cost supplier in the world. Aggregating across all goods, assuming thatfactor prices are denominated in the domestic currency as well as assuming complete pass-through,the expenditure share that buyers in n spend on goods from i can be written as
5
πni =Ti
(riw
βi p1−β
i τni
)−θ
(rnPn)−θ
where P−θn =
N
∑`=1
Tl
(rlrn
wβl p1−β
l τn`
)−θ
, (2)
where wi is the wage paid to workers in i, pi is the price of tradable intermediate goods, ri is thenominal exchange rate that converts domestic prices into a common international currency (the USdollar, for instance) and β is the share of intermediate goods in the production of manufacturinggoods. Comparing equation (2) to equation (1) shows that the three structural gravity terms are given
by Si = Ti
(riw
βi p1−β
i
)−θ, φni = τ−θ
ni with θ as the trade elasticity and the multilateral resistance term
in international currency Φn = (rnPn)−θ.
Asserting a market clearing condition implies that total output in i, Yi, corresponds to totalspending, Xi. With labor as the sole factor, the value of production in local currency in the countryof origin is given by Yi = wiLi. Following Dekle et al. (2007), the market clearing conditions for themanufacturing sector in international currency become
riwiLi = ∑n
πni (wnLn + rnDn) ,
where Di is the overall trade deficit in local currency.5
At this point, it is important to note that while we chose the Eaton-Kortum variant of the gravitymodel as the underlying theoretical foundation, all other theoretical models that adhere to structuralgravity are compatible with the following analysis on the estimation bias. The main difference willbe the underlying implications on the micro-structure and its corresponding interpretations.
2.2 Counterfactual analysis
To produce counterfactual analysis, we use the exact hat notation, see Dekle et al. (2007) and Arko-lakis et al. (2012), to derive the aggregate export equation. More precisely, hats denote the ratioof post-shock to pre-shock values. We start by assessing the change in bilateral exports and thenaggregate to obtain the change in total exports. For bilateral exports of country i to country n ininternational currency, we have
Xni ≡X′ni
Xni,
where X′ni is bilateral trade after the change and Xni is the value before any change. The resulting
change in total exports after the policy change is simply the sum over all import countries with theexception of country i’s home market. Furthermore, we can decompose the change in total exports(Ei) as the sum of changes in the expenditure shares and the aggregate expenditure in international
5For exposition purposes we do not present the derivations of the market clearing condition and refer to Dekle et al.(2007) for the details.
6
currency across all importing countries weighted by the initial share of exports going to country n(ωni = Xni/Ei):
Ei =1Ei
∑n 6=i
π′niX
′n = ∑
n 6=iωniπniXn (3)
This equation is extremely general and simply states that the change in a country’s total exportscorresponds to the weighted sum of all proportional changes in bilateral exports. Weights are theinitial share of each bilateral flow in total exports. The change in each bilateral flow can have twoorigins: i) an increase in total expenditure in destination n, or ii) a change in competitiveness ofcountry i relative to all other trading partners of n.
As a policy shock, we consider an exogenous change in the nominal exchange rate of countryi, ri, which is independent of the exchange rate in all other countries. The shock to ri acts like ashifter of delivered prices to the consumer (which assumes complete pass-through at this stage).6
Without migration or other affects to the population, we have changes in output given by changesin the nominal exchange rate and wages, riwi = Yi. Assuming that technology and trade costs areunaffected by the shock, the implied change in the bilateral trade shares resulting from a change inthe nominal exchange rate takes the following form:
πni =
(riw
βi p1−β
i
)−θ
(rnPn
)−θ, (4)
where the change in the price index of country n is equal to the change in country i’s exchange ratetimes the weight of country i in country n’s import basket,
P−θn =
N
∑k=1
πnk
(rkrn
wβk p1−β
k
)−θ
. (5)
Plugging the calculated trade shares back into the market clearing condition, one can solve forthe changes in production of each country of origin. The resulting changes in equilibrium wages (wi)paid in local currency are
riwiYi = ∑n
πni
(riw
βi p1−β
i
)−θ
∑k πnk
(rkwβ
k p1−βk
)−θ
(rnwnYn + Dn) . (6)
Note that, in this model, a nominal exchange rate shock will affect relative prices and lead tochanges in trade flows. The reason is that we fix the trade deficit in international currency, i.e., inUS dollars. Given this assumption, the wage adjustment will not be one-to-one with exchange ratechange and depends on the dollar value of the current account deficit.7 As such, this scenario will be
6In this model the exchange rate shock is a nominal shock that changes the unit of account of prices.7Alternatively, if one assumes that the ratio of the current account deficit to GDP is constant or trade is balanced
7
instructive to understand potential aggregation biases when constructing an effective exchange ratein general equilibrium.8
To obtain the export equation, we can simply apply equation 4 into equation 3. Taking logs andassuming that prices are set in the international currency,9 we can write the log change in exports asa function of the log change in the real exchange rate (RERi) and foreign demand as
ln Ei = −θ ln ˆRERi + ln ∑n 6=i
ωni
(Xn(
rnPn)−θ
). (7)
Xn = rnwnYn + Dn represents changes in absorption and the real exchange rate is defined as thechange in the nominal exchange rate and the change in the producer price in the exporting countryin local currency, i.e., changes in intermediate input prices and wages, ˆRERi = riPii = riw
βi p1−β
i .Equation 7 implies that, under the assumption of a constant elasticity of substitution, there is
no aggregation bias in aggregate macro exchange rate regressions. In order to obtain these unbiasedestimates, one needs to regress the log of the change in nominal exports on the log of the change inthe real exchange rate and the foreign demand deflated by changes in the importer’s price index:
ln Ei = βRER ln ˆRERi + βX ln ∑n 6=i
ωni
(Xn(
rnPn)βRER
)+ εi (8)
βRER will be the estimated exchange rate elasticity, βX the corresponding demand elasticity and εi
the error term. However, to our knowledge, there is no paper running regressions based on equa-tion 8. Instead, the literature focuses on trade-weighted real (or nominal) effective exchange rateregressions, which aggregate bilateral exchange rates to a single country-specific indicator. Next, wediscuss the theoretical underpinnings of the effective exchange rate regressions used in applied workand relate them to the structural gravity framework.
(Dn = 0,∀n), then changes in the exchange rate will be one-to-one offset by changes in the local wage and have no realeffects. In this case the equilibrium condition looks as follows:
riwiYi = ∑n
πni
(riw
βi p1−β
i
)−θ
∑` πn`
(rlw
βl p1−β
l
)−θ
(rnwn (Yn + Dn))
The appendix discusses this point in more detail and provides a proof that a nominal exchange rate shock has realeffects when fixing the current account deficit in international dollars.
8Anderson et al. (2016) consider an alternative approach that leads to changes in relative prices across countries after anominal exchange rate shock. They assume an exogenous degree of incomplete exchange rate pass-through into importprices (ri = rρn
i where ρn is the exogenous degree of import pass-through). However, in this case aggregation of thebilateral flows to an effective exchange rate without bias will not be possible. The change in the exporter’s price willdepend on the importing country n and cannot be separated from the demand effect as in equation 7.
9 We discuss the importance of this assumption together with alternative pricing assumptions on the exchange ratepass-through in section 5.
8
3 The real effective exchange rate approach
McGuirk (1986) is the standard reference that describes the methods used to construct an aggre-gate price competitiveness indicator, or the real effective exchange rate. This indicator attempts tomeasure a country’s price change in the tradable sector relative to those of other countries after con-verting each of them into a common currency. In this section we show that aggregation based on theeffective exchange rate relies on a functional form approximation and that using this indicator forparameter inference will lead to bias in the estimated coefficients.
The theoretical foundations of the McGuirk (1986) approach rests on the Armington (1969) as-sumption of imperfect substitutability between goods and a constant elasticity of substitution (CES),which is consistent with structural gravity. The starting point is writing the bilateral import demandfunction of country n for goods from country i , Xni, as a function of total expenditure Xn and thebilateral shares defined in equation 2. Taking the log and considering the change from the initialequilibrium to the new equilibrium ln Xni = 4 ln Xni = (ln X′ni − ln Xni), we get
ln Xni = −θ ln(
ri
rn
Pni
Pn
)+ ln Xn, (9)
where ln Pni denotes the change in the price that exporting country i charges to consumers in coun-try n and ln Pn is the change in the price index of the importing country n, both denoted in localcurrency.10 Concerning the changes in the importing country’s price changes, McGuirk (1986) ap-proximates the log change of the importer’s price as a weighted average of the log changes in theproduction prices:
ln rnPn =K
∑k=1
πnk ln(rkPkk
), (10)
where Pkk represents the change in producer price index in country k and πnk is the expenditureshares of country n. Using further simplifications outlined in the appendix, we can substitute theimport price index in equation 9 with equation 10 and aggregate across all importing countries. Todo so, we sum the bilateral trade flows over all markets (excluding the home market) by weightingthe flows by the share of i’s output sold in each market:
∑n 6=i
ωni ln Xni = −θ ∑n 6=i
∑k 6=i
ωniπnk ln(
ri
rk
Pii
Pkk
)+ ∑
n 6=iωni ln Xn,
where the weight ωni is defined as the share of export revenues of country i that comes from salesin destination n with respect to total export sales. Next, we define the double-weighted real effectiveexchange rate (REER) as follows:
10Based on the model in section 2 and the assumption that trade costs are fixed, the change in the foreign price equalsthe change in producer prices, which equals the change in marginal costs ln Pni = ln Pii = ln
(wβ
i p1−βi
).
9
ln ˆREERi = ∑n 6=i
∑k 6=i
ωniπnk ln(
ri
rk
Pii
Pkk
)(11)
and write the standard REER regression used in the literature as
ln Ei = βREER ln ˆREERi + βX ∑n 6=i
ωni ln Xn + εi, (12)
where βREER is the estimated exchange rate elasticity of specification and βX the demand elasticity.εi represents the estimation error. The estimation produces unbiased estimates if the exchange rateelasticity (βREER) is equal to θ and if the foreign demand elasticity (βX) is equal to one.
3.1 Aggregation bias
The essential difference between the REER regression in equation 12 and the ideal-REER regressionimplied by gravity in equation 7 is that the change in total exports is approximately equal to theweighted sum of the bilateral export changes, i.e., ln Ei ≈ ∑n 6=i ωni ln Xni. To see the differencebetween the two approaches explicitly, we rewrite the REER in equation 9 as a weighted average ofthe bilateral real exchange rate without substituting for the importer’s price index using equation10. The resulting change in the REER is simply the log difference between the changes in the realexchange rate (RER) of exporter i and a weighted average of the price index changes of every tradingpartner:
ln ˆREERi = ln(
Pii ri)− ∑
n 6=iωni ln
(Pnrn
). (13)
Substituting the implied REER in equation 13 back into the standard REER regression definedin equation 12, we can compare the ideal REER regression in equation 7 with the standard REERregression:
−θ ln(
Pii ri)+ ln ∑
n 6=iωni
(Xn(
Pnrn)−θ
)≈ −θ
(ln(
Pii ri)− ∑
n 6=iωni ln
(Pnrn
))+ ∑
n 6=iωni ln Xn
Canceling the RERi on both sides and rewriting the destination-specific terms, we can applyJensen’s inequality and arrive at the following inequality:11
ln ∑n 6=i
ωni
(Xn(
Pnrn)−θ
)≥ ∑
n 6=iωni ln
(Xn(
Pnrn)−θ
)(14)
11The result follows from Jensen’s inequality and parallels the proof of the inequality of arithmetic and geometricmeans, more formally, ln ∑n 6=i ωnixn ≥ ln ∏n 6=i
(xwni
n).
10
Equation 14 states that the log of total exports (the LHS) is larger than the weighted average of thebilateral trade flows (the RHS). The difference between the two expressions is related to the Theilinequality index12, which measures the heterogeneity in the destination-specific changes. Intuitively,the Theil index and the resulting bias will be larger the higher the variance is from destination-specific shocks. In the extreme case, if prices and demand change only in one destination, the Theilindex is at a maximum value and the estimation biases in the demand and exchange rate elasticities ofthe REER approach will be at their largest.13 On the other hand, when the price and demand changesin all destinations are the same, the Theil index will be zero and both regression specifications willlead to the same elasticities. In the simulation section, we quantify the estimation biases as a functionof the exchange rate shocks and the trade elasticity. Before, we discuss other real effective exchangerate regression specifications found in the literature starting with an alternative weighting scheme.
3.2 Weighting scheme
The effective exchange rate calculated by policy institutions such as the IMF (Bayoumi et al. (2005)),the European Central Bank (ECB) (Schmitz et al. (2011)) and the Bank for International Settlements(BIS) (Klau and Fung (2006)) follows the double weighting approach approach of McGuirk (1986)but uses slightly different weights. Their calculations include the sales of the exporter country in itsdomestic market. The REER is defined as follows:
ln ˆREERIMFi = ∑
k 6=iTWki ln
(ri
rk
Pii
Pkk
),
and the implied weights are given by
TWki =N
∑n=1
ψniπnk, (15)
where ψik is the export weight including the home market shares. ψik relates to our export weightsin the following way:
ψni =Xni
∑Nn=1 Xni
= ωni
(∑n 6=i Xni
∑Nn=1 Xni
)However, as Bayoumi et al. (2005) note, the weights implied by equation 15 do not sum to 1. As
a result, the weights are normalized leading to the following definition:14
12The Theil L entropy index is defined as TL = ∑Ni=1 wi ln
(µxi
), where wi is the importance weight of observation i’s
characteristic xi. The sum of wi over all observations i equals one. µ is the corresponding arithmetic mean.13New Zealand is a good example. An exchange rate shock to the New Zealand dollar will change prices and demand
in Australia but is likely to have little impact on other parts of the world.14The appendix provides details on the derivations.
11
TWki =∑N
n=1 ψniπnk
∑Nn=1 ψni (1− πni)
(16)
The denominator of equation 16 ensures that TWki sums to 1. The resulting estimation equation isthen given by
ln Ei = βREER ln ˆREERIMFi + βX ∑
k 6=iωni ln Xn + εi, (17)
where the weights for the foreign demand continue to be the export shares ωni. We do not have anyprior on the direction of the bias in the demand (βX) and the exchange rate elasticity (βRER) causedby the weighting scheme and refer to section 4 for the quantitative simulation results.
3.3 Multilateral resistance term
The value of exports depends not only on the country’s export price and foreign demand, but alsoon the willingness of foreigners to substitute domestic for foreign goods. The multilateral resistanceterm Φn defined in equation 1 picks this idea up. This subsection discusses the estimation bias in thedemand and trade elasticities provoked by the absence of the multilateral terms in the ideal-REERand the standard REER regression approach.
The first point to note is that the change in the multilateral resistance term summarizes all theprice changes due to variations in the competitiveness of exporter n as well as changes in country i’sown competitiveness in its domestic market:
Φn =(rnPn
)−θ=
N
∑k=1
πkn(rkPkk
)−θ (18)
In our framework, the price change in exporter’s competitiveness Pkk is simply given by thechange in the exporter’s per unit costs of production (wages and intermediate input prices) and theexchange rate. The parameter θ describes consumers’ willingness to substitute domestic for foreigngoods following a price change. Omitting the multilateral resistance term in the export equation, werun the following regression:
ln Ei = βRERln(
Pii ri)︸ ︷︷ ︸
ˆRERi
+ βX ln ∑n 6=i
ωniXn + ui (19)
Equation 19 implies that the multilateral resistance term enters the error ui = − ln ∑n 6=i ωni(rnPn
)−θ+
εi. The omitted variable bias in the estimate of θ depends on the co-variance between the change inthe exporter’s price and the multilateral resistance term:
12
βRER = −θ +Cov
(ln riPii, ln ∑n 6=i ωni
(rnPn
)−θ)
Var(ln riPii
) (20)
In general, the multilateral resistance term will be positively correlated with changes in the realexchange rate. The following example with the US as the exporter and Canada as the importer illus-trates this correlation. Suppose that the US dollar depreciates (ri ↑), which increases competitivenessof US exports in all destinations. Depending on the Canadian expenditure share on goods from theUS, this change lowers the Canadian price index directly by making US goods cheaper and indirectlyby reducing Canadian producer prices through lower costs for intermediate inputs. More generally,countries with the highest expenditure share on US goods (Canada and Mexico) will experience thelargest decline in prices. Given that the multilateral resistance term in equation 18 depends neg-atively on the price index, the correlation with the exchange rate shock is positive and the tradeelasticity will be biased towards zero.
Similarly, the bias in the demand elasticity depends on the co-variance between the change inthe foreign demand and the multilateral resistance term in the error:
βX = 1−Cov
(ln ∑n 6=i ωniXn, ln ∑n 6=i ωni
(rnPn
)−θ)
Var(
ln ∑n 6=i ωniXn
) (21)
In this case we expect a downward bias in the demand elasticity due to a positive correlationbetween the multilateral resistance term and foreign demand. The reasoning parallels the correlationwith the real exchange rate. An exchange rate depreciation of country i, ri, reduces the price index indestination n and increases the multilateral resistance term. The lower prices increase demand andimply a positive correlation between the multilateral resistance term and foreign demand.
So far, we have shown that if the assumptions of structural gravity hold, one can consistentlyaggregate bilateral exchange rate changes and estimate the trade and demand elasticities using theaggregate export equation. However, the empirical literature follows an alternative approach basedon real effective exchange rates that essentially approximates the aggregate change of exports usinga weighted average of changes in bilateral exports. As we have shown, this approximation willlead to an aggregation bias in the estimated elasticities if the underlying exogenous shock causesa heterogeneous response in bilateral trade. We have also discussed alternative approaches in theapplied literature that are based on differences in the weighting scheme as well as highlighted theimportance of accounting for the multilateral resistance term. In the following section, we simulate astandard structural gravity model in order to quantify the magnitude of the estimation biases whenusing real effective exchange rate regressions for parameter inference.
13
4 Simulation results
Having described the underlying micro-structure, we quantify potential estimation bias in variousexchange rate regression specifications using the data set provided by Dekle et al. (2007). These datacomprise bilateral trade flows in manufactures, GDP as well as balance of payments information for39 countries (plus the Rest of the World) in the year 2004.15
1. Ideal-REER
The first specification captures the real exchange rate model implied by the exact hat algebra inequation 8. This ideal-REER regression is the benchmark specification and will produce unbiasedestimates of the trade elasticity (β1
RER = −θ) and the foreign demand elasticity (β1X = 1) with no
error. Note that the regression equation 8 is non-linear because the trade elasticity is unknown. Weestimate the relevant elasticities using SILS (structurally iterated least squares) as described in Headand Mayer (2014).
2. Multilateral resistance (“Gold medal mistake”)
An important problem when estimating REER regressions is the presence of the multilateral resis-tance term. This term captures the implied price changes in the rest of the world due to policy shocks.We assess the importance of the omitted variable bias due to the absence of the multilateral terms byestimating equation 19.
3. Real effective exchange rate à la McGuirk
The third specification quantifies the aggregation bias when estimating the double-weighted REERregression in equation 12.
4. Approximation via log changes
One difference between the double-weighted REER regression à la McGuirk and the ideal-REERregression is that the multilateral resistance term deflates export prices rather than foreign demand.To assess the importance of this functional form assumption, we approximate the baseline regressionwith log changes and keep the non-linear form of equation 8:
ln Ei = βRER ln ˆRERi + βX ∑n 6=i
ωni
(ln Xn
ln(rnPn
)βRER
)+ εi (22)
Similar to the baseline specification, we estimate equation 22 non-linearly using SILS.
15The bilateral trade share matrix is a sufficient statistic for a set of parameters including trade costs. For further details,please refer directly to Dekle et al. (2007).
14
5. Real effective exchange rate with different weights
The fifth specification quantifies the estimation bias when running a double-weighted REER regres-sion and using an alternative weighting scheme, i.e., IMF weights, as defined in equation 17.
For each of the 5 specifications, we consider two types of policy experiments. The first one isthe partial equilibrium approach (modular trade impact (MTI) counterfactual), where we consideran exogenous change in the nominal exchange rate and assume that wages do not adjust (however,intermediate input prices do adjust). In the second experiment, the general equilibrium trade inte-gration (GETI) counterfactual, wages and prices will fully adjust following a shock to the nominalexchange rate.
4.1 Modular Trade Impact (MTI) counterfactual
The MTI counterfactual considers changes in prices and leaves wages constant by allowing the tradedeficit to change. This case is identical to the one considered by McGuirk (1986). This approachallows us to abstract from income changes in the interpretation of the bias in the exchange rate elas-ticity. The counterfactual consists of a random nominal exchange rate shock (ri) specific to country i(France, for example), keeping the exchange rates of all other countries fixed. Each shock is drawnfrom a normal distribution with a variance of 0.1 (equivalent to a 10 percent appreciation or depreci-ation). For every country, we run 100 different exchange rate shocks to obtain a sample of 39x39x100data points. Next, we run a cross-section OLS regression for each replication and record the demandand exchange rate coefficients. Table 1 contains the results.
The top value in Table 1 reports the average exchange rate and demand elasticity for the 3900estimated coefficients. The second row corresponds to the implied bias of the estimate, i.e., the dif-ference between the sample mean and the true value of the coefficients. The third row shows thestandard deviation of the estimates. Lastly, the fourth row gives the square root of the estimatedmean squared error (MSE), our selection criteria for the specification with the lowest aggregationbias. The first column shows the results for the baseline specification. The estimates are equal to thetrue values of the elasticities (−4 and 1, respectively) and therefore unbiased.16 All other specifica-tions lead to a bias. In general, the bias is more pronounced for the demand than for the exchange rateelasticities. The MSE for the demand elasticities is significantly larger than the MSE for the exchangerate elasticities. The omission of the multilateral resistance term in Specification 2 (the “Gold medalmistake”) shown in column (2) produces the largest biases for the exchange rate elasticity (-3.872).The specifications with the smallest bias are the double-weighted REER approach à la McGuirk incolumn (3) and the log approximation of the baseline specification in column (4). The point estimate
16In the baseline simulation we calibrate θ = 4, which is a common value found in the literature (see Simonovska andWaugh (2014)). However, the magnitude of the bias does not depend on the level of this elasticity. Table 9 in the appendixcontains simulation results for when the elasticity is θ = 0.8.
15
Table 1: MTI simulated elasticities of country-specific random exchange rate shocks
Baseline GM mistake REER McGuirk d ln approx. Alternative("ideal-REER") ("real-REER") weights
(1) (2) (3) (4) (5)
Exchange rateMean -4 -3.872 -4 -4 -3.957Bias 0 .128 0 0 .043Std dev. 0 .247 .004 .003 .08MSE 1/2 0 .278 .004 .003 .091
Foreign demandMean 1 0 0 1.002 0Bias 0 0 0 .002 0Std dev. 0 0 0 .039 0MSE 1/2 0 0 0 .039 0
Notes: The sample consists of 39 countries and each country receives 100 random exchange rate shocks. The total numberof estimated exchange rate and demand elasticities is 3900 for each of the 5 different specifications. The top cell labeled"Mean" reports the sample mean of the respective estimates for each type of elasticity. The rows labeled "Bias" give theestimated bias, where est. bias = sample mean - true value. Rows labeled "Std Dev." give the sample standard deviationof the 3900 point estimates. Rows labeled "MSE1/2" give the square root of the estimated mean squared error (MSE),where estimated MSE = (est. bias)2 + (std dev)2.
of the exchange rate elasticity is -4 with a standard deviation smaller than 0.001. The coefficient ofthe demand elasticity for the log approximation is slightly larger than 1 with 1.002. Finally, the lastcolumn (5) shows the bias in the case of alternative weights, which overestimates the exchange rateelasticity (-3.957).
In addition to the average elasticities reported in table 1, figure 1 plots the country-specific biasin the exchange rate elasticity as a function of the exchange rate shock. The magnitude of the biasincreases in the size of the exchange rate shock in all specifications. We also observe that in the caseof the “McGuirk” (sub-figure b) and the “log-approximation” (sub-figure c) that the direction of thebias is the opposite of the exchange rate shock (a depreciation leads to a downward bias while anappreciation leads to an upward bias). The other two scenarios show the importance of using theadequate functional form. Omitting the variation in the weighted average of the competitor’s priceindex (scenario “Gold medal mistake”) or having the wrong weighting scheme (scenario “Alterna-tive weights”) leads to larger biases for countries that have more important implications in the inter-national trading system. For example, the United States has the largest bias because it is, on average,the most important trading partner for the countries in our sample and, as a result, an exchange rateshock to the US dollar induces the largest variation in the partner countries’ price indexes.
16
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MEXMEXMEX MEXMEX MEXMEXMEXMEX MEXMEXMEX MEXMEX MEXMEXMEX MEX MEXMEX MEXMEXMEX MEX MEXMEXMEX MEX MEXMEXMEX MEXMEX MEXMEXMEX MEX MEXMEXMEXMEX MEX MEXMEXMEXMEXMEXMEXMEXMEX MEXMEXMEX MEXMEX MEX MEXMEXMEXMEX MEXMEXMEXMEX MEXMEXMEX MEX MEXMEXMEX MEXMEXMEX MEX MEXMEXMEX MEXMEXMEXMEX MEXMEXMEX MEXMEX MEX MEXMEXMEX MEXMEXMEX MEXMEX MEXMEX MEXMEXMYSMYS MYSMYSMYS MYSMYSMYS MYSMYSMYSMYS MYSMYSMYSMYSMYS MYSMYS MYSMYSMYS MYSMYS MYSMYS MYSMYSMYSMYS MYSMYSMYSMYS MYS MYSMYSMYS MYS MYSMYS MYSMYS MYSMYSMYSMYS MYSMYS MYSMYSMYSMYS MYSMYSMYSMYSMYSMYS MYS MYSMYSMYS MYSMYSMYS MYSMYSMYS MYSMYS MYSMYS MYSMYSMYS MYSMYSMYS MYSMYS MYS MYSMYSMYS MYSMYS MYSMYS MYSMYSMYS MYSMYSMYSMYS MYSMYSMYSMYSNOR NOR NORNORNORNORNOR NORNOR NORNORNOR NOR NORNORNOR NORNORNORNORNOR NORNOR NORNOR NORNORNOR NOR NORNOR NORNOR NORNORNOR NORNOR NORNORNOR NORNORNORNOR NORNORNORNOR NORNORNORNORNOR NOR NORNOR NORNORNORNOR NORNOR NORNORNOR NORNOR NORNOR NORNOR NOR NOR NORNORNORNOR NORNOR NORNORNORNOR NORNORNORNORNOR NOR NORNOR NORNORNORNOR NOR NORNOR NORNZL NZLNZLNZL NZLNZL NZLNZLNZL NZLNZL NZLNZL NZLNZL NZL NZLNZL NZLNZL NZLNZL NZLNZLNZL NZL NZLNZLNZL NZLNZL NZLNZL NZL NZLNZLNZLNZL NZLNZL NZLNZLNZLNZL NZL NZLNZLNZLNZL NZLNZLNZL NZL NZLNZL NZLNZL NZLNZL NZLNZLNZLNZL NZLNZL NZLNZL NZLNZL NZLNZLNZL NZLNZL NZLNZL NZLNZL NZLNZLNZL NZLNZLNZLNZL NZL NZLNZL NZL NZLNZLNZL NZLNZLNZL NZLNZLNZL NZLNZLPAK PAKPAKPAKPAKPAKPAKPAK PAK PAKPAKPAK PAKPAK PAKPAKPAK PAKPAK PAKPAK PAKPAKPAKPAKPAK PAKPAK PAK PAKPAK PAK PAKPAKPAK PAKPAKPAKPAKPAK PAK PAKPAK PAK PAKPAK PAK PAKPAKPAKPAK PAK PAK PAKPAKPAK PAKPAK PAKPAK PAK PAKPAKPAK PAKPAKPAKPAKPAKPAKPAKPAK PAK PAKPAKPAK PAKPAKPAK PAKPAK PAKPAKPAK PAKPAK PAKPAKPAKPAK PAKPAKPAKPAKPAK PAKPAK PAKPAK PAKPERPER PERPER PER PERPER PER PERPERPER PERPER PERPERPER PERPERPERPER PERPER PERPER PERPER PERPER PERPERPER PERPER PERPER PER PERPERPERPERPER PERPER PERPERPER PERPER PERPERPER PERPERPER PERPERPERPERPERPER PER PER PERPER PERPER PERPER PERPER PER PERPER PERPER PERPER PER PERPERPER PERPER PERPERPER PERPER PERPER PERPERPER PERPERPERPER PERPERPER PHLPHL PHLPHL PHLPHLPHLPHL PHLPHL PHLPHL PHLPHLPHLPHLPHL PHLPHL PHLPHL PHLPHL PHL PHLPHLPHLPHLPHL PHLPHL PHLPHL PHLPHLPHL PHLPHL PHLPHLPHLPHL PHL PHLPHLPHL PHLPHLPHLPHLPHL PHL PHLPHLPHL PHLPHLPHLPHL PHLPHL PHLPHLPHLPHLPHLPHL PHLPHL PHL PHL PHLPHLPHLPHL PHL PHLPHL PHLPHL PHL PHLPHL PHLPHL PHLPHLPHLPHL PHLPHL PHLPHL PHLPHLPHLPHLPHLPHL PHLPRTPRT PRTPRT PRT PRTPRTPRTPRTPRTPRTPRT PRTPRT PRTPRT PRTPRTPRT PRTPRT PRTPRTPRT PRT PRTPRT PRTPRT PRTPRTPRTPRT PRT PRTPRTPRTPRT PRTPRTPRT PRTPRT PRTPRTPRT PRT PRTPRTPRTPRTPRT PRT PRTPRTPRT PRTPRT PRTPRT PRTPRTPRTPRTPRT PRT PRTPRTPRT PRT PRTPRT PRTPRTPRT PRTPRTPRT PRTPRTPRT PRTPRT PRTPRTPRTPRTPRT PRTPRTPRTPRTPRT PRTPRTPRTPRTPRTPRT PRT RUSRUSRUS RUSRUS RUS RUSRUSRUS RUSRUSRUSRUSRUSRUSRUSRUSRUSRUSRUS RUS RUSRUS RUSRUSRUS RUSRUSRUSRUSRUSRUSRUSRUS RUS RUSRUSRUS RUSRUSRUS RUSRUSRUSRUS RUSRUS RUSRUS RUSRUS RUSRUSRUSRUS RUSRUSRUSRUSRUS RUSRUSRUS RUS RUSRUSRUS RUSRUS RUS RUSRUSRUS RUSRUS RUSRUS RUSRUSRUS RUSRUS RUSRUSRUSRUSRUSRUS RUSRUS RUS RUSRUSRUSRUSRUSRUS RUSRUSRUS SWESWESWESWE SWESWESWE SWESWESWE SWESWE SWESWESWESWE SWESWE SWESWESWE SWE SWESWE SWESWE SWESWESWE SWESWE SWE SWE SWESWESWE SWESWESWESWE SWE SWESWESWESWESWE SWE SWESWE SWESWE SWESWE SWE SWESWE SWESWE SWESWESWE SWESWESWE SWESWE SWESWESWE SWE SWESWESWESWE SWESWESWE SWESWE SWESWESWESWE SWESWESWE SWESWESWE SWESWESWE SWESWESWE SWESWESWESWE SWETURTURTUR TUR TURTURTURTURTURTUR TURTURTUR TURTUR TURTUR TURTURTUR TURTURTURTUR TURTURTUR TURTUR TUR TURTURTUR TURTUR TURTUR TURTUR TURTURTURTUR TURTUR TURTURTURTURTUR TURTURTURTUR TURTURTUR TURTURTUR TURTUR TUR TUR TURTUR TURTURTURTUR TUR TUR TURTUR TURTURTUR TURTUR TURTURTURTUR TURTURTUR TURTUR TUR TURTUR TURTUR TURTURTUR TURTURTURTUR
USA USAUSA
USAUSA
USAUSA
USAUSAUSA
USAUSAUSAUSAUSAUSA
USAUSA
USAUSA
USAUSA
USAUSA
USA USAUSA USAUSA
USA USAUSAUSAUSA
USA USA USAUSAUSAUSA USAUSAUSA
USAUSA USAUSA
USAUSAUSAUSAUSAUSA USA USA
USAUSAUSAUSA
USAUSAUSA
USAUSA USA
USA USAUSA
USA
USAUSAUSAUSAUSA
USAUSA
USAUSAUSAUSAUSAUSAUSAUSA USA
USAUSAUSAUSA USAUSAUSAUSAUSA
USAUSAUSA
USAUSAUSA
VENVENVENVENVEN VEN VENVEN VEN VENVENVEN VEN VENVEN VEN VENVEN VENVENVENVEN VENVENVEN VENVEN VENVENVEN VENVENVEN VENVENVENVENVENVENVEN VENVEN VENVENVENVENVEN VEN VENVENVEN VENVEN VEN VENVENVEN VEN VENVEN VENVEN VENVEN VENVEN VENVEN VEN VENVEN VENVENVEN VENVENVEN VENVEN VENVEN VENVEN VEN VENVENVENVENVENVEN VENVENVEN VENVENVEN VENVEN VENVENZAF ZAFZAF ZAF ZAFZAF ZAFZAFZAF ZAFZAF ZAFZAF ZAFZAFZAF ZAFZAFZAF ZAF ZAFZAFZAF ZAFZAFZAF ZAFZAFZAF ZAFZAF ZAF ZAFZAFZAFZAF ZAFZAFZAF ZAFZAFZAF ZAFZAF ZAFZAFZAFZAFZAF ZAF ZAF ZAFZAFZAF ZAFZAFZAF ZAF ZAFZAFZAFZAFZAFZAFZAF ZAFZAFZAF ZAFZAF ZAFZAFZAFZAFZAF ZAFZAFZAFZAF ZAF ZAFZAF ZAFZAFZAFZAFZAFZAF ZAF ZAFZAF ZAFZAF ZAF ZAFZAF ZAFZAFZAF ZAF-4-3
.5-3
-2.5
Estim
ated
exc
hang
e ra
te e
last
icity
-.4 -.2 0 .2 .4Exchange rate shock
Specification 2: Gold medal mistakeExchange rate shock vs. magnitude of exchange rate bias
(a) Gold medal mistake
ARG ARGARGARGARG ARGARG ARGARGARG ARGARGARG
ARGARGARG ARG ARGARG ARG ARGARGARGARGARG ARG ARG
ARGARGARGARGARGARG ARGARGARGARG ARG ARGARGARGARGARGARG ARGARG ARG
ARG ARG ARGARGARGARG ARGARG ARG ARGARG ARGARGARG ARG ARG ARGARG ARGARGARGARG ARG ARGARGARG
ARGARGARGARG ARGARGARGARGARGARGARGARG ARGARG ARG ARGARG ARG ARGARGARGARG ARGARGARG ARGARGAUS AUSAUS AUSAUS AUS AUS AUSAUSAUS AUSAUSAUSAUS AUSAUSAUSAUS AUS AUSAUS AUSAUSAUS AUSAUS AUSAUSAUS AUSAUSAUSAUS AUS AUSAUSAUSAUS AUSAUSAUSAUS AUSAUS AUSAUSAUS AUSAUS AUS AUSAUSAUSAUS AUS AUSAUS AUSAUS AUSAUSAUS AUS AUS AUS AUSAUS AUSAUSAUSAUS AUS AUSAUSAUS AUSAUS AUSAUSAUS AUSAUSAUSAUSAUSAUSAUSAUSAUS AUSAUSAUS AUSAUSAUSAUS AUSAUS AUSAUSAUT
AUTAUTAUTAUTAUT
AUTAUT
AUT AUT AUT AUTAUTAUTAUT AUT AUTAUT AUT AUTAUTAUTAUTAUT AUT
AUT AUTAUT AUTAUTAUT AUT AUT AUTAUT
AUT AUTAUT AUT AUT AUTAUTAUTAUTAUT AUT AUTAUT AUTAUT
AUTAUT AUTAUTAUTAUT AUT AUTAUTAUT AUTAUT AUTAUT AUTAUTAUTAUTAUTAUTAUTAUT AUT
AUTAUT AUTAUT
AUT AUTAUTAUTAUT AUTAUTAUT AUTAUTAUT AUTAUT AUTAUTAUT AUTAUT AUTAUT AUTAUTAUT BEL BELBELBEL BELBEL
BELBELBELBEL BEL
BEL BELBEL
BEL BELBEL BELBELBEL
BELBELBEL
BELBELBELBEL BEL
BELBELBELBEL BEL
BELBEL
BELBELBELBEL BEL
BEL BELBELBELBELBELBELBEL
BELBEL
BELBEL
BELBEL BELBELBELBELBEL
BELBELBEL
BELBEL
BELBELBEL BELBELBEL BELBELBEL BEL
BELBELBEL BELBELBEL
BELBELBELBELBEL
BELBEL
BELBELBEL
BEL BEL
BEL
BELBEL
BELBEL
BELBEL
BELBRABRA BRABRABRABRA BRABRA BRABRABRA BRABRA
BRABRA BRABRABRA BRABRA
BRABRA BRABRABRABRABRABRABRA
BRABRA BRA BRABRA BRABRABRA BRABRABRABRABRABRABRABRABRA BRA BRABRABRA BRABRA BRABRABRA BRABRABRABRA BRABRABRA
BRABRA BRA
BRABRABRA BRABRA BRA
BRABRABRA
BRA BRABRABRABRA
BRABRABRABRA BRABRA BRABRABRABRA BRABRA BRABRABRABRABRA
BRABRA
BRA BRACANCANCANCANCAN
CAN
CANCAN
CANCAN
CAN
CANCAN CAN
CAN
CAN
CANCANCANCAN
CANCANCAN
CAN CANCAN
CANCAN
CAN
CAN
CANCANCAN
CANCAN
CANCANCAN
CANCANCANCANCAN
CANCAN
CAN
CAN
CANCAN
CAN
CANCAN
CANCANCAN
CANCAN
CANCAN CAN
CAN
CAN
CANCANCAN
CANCAN
CAN
CANCAN
CANCANCAN CAN
CANCANCAN
CANCAN
CANCAN
CAN
CAN
CANCAN
CANCANCANCAN
CAN CAN
CANCAN
CANCAN
CANCANCAN
CAN
CANCHE CHECHECHECHECHECHE
CHECHECHE
CHECHE
CHECHE
CHECHECHE CHE CHECHECHECHECHECHECHE
CHECHE CHECHE
CHECHE
CHECHE CHECHECHECHE
CHECHECHECHECHE
CHECHE CHECHE CHECHE
CHECHECHECHE CHECHECHECHECHECHE CHECHE CHE
CHECHECHECHE
CHE CHECHECHE
CHECHECHECHE CHE CHECHECHECHE
CHE CHECHE CHE CHECHECHE CHECHECHECHE CHECHECHECHE CHE CHECHE
CHECHECHE
CHECHL CHLCHL CHL CHL CHLCHL CHLCHLCHL CHL CHLCHLCHL CHLCHL CHLCHLCHL CHLCHLCHLCHLCHL CHLCHL CHL CHLCHLCHLCHL CHLCHLCHL CHLCHLCHL CHLCHL CHLCHL CHLCHL CHLCHLCHLCHL CHL CHLCHL CHL CHLCHL CHLCHLCHL CHL CHL CHLCHLCHL CHL CHLCHLCHLCHL CHLCHLCHLCHL CHL CHL CHLCHLCHL CHL CHLCHL CHLCHLCHLCHLCHLCHL CHLCHLCHLCHL CHLCHLCHL CHLCHL CHLCHLCHLCHLCHLCHLCHL
CHNCHNCHN
CHN
CHNCHN CHN
CHNCHNCHNCHN
CHN
CHNCHN
CHNCHN
CHNCHNCHN
CHN
CHN
CHNCHN
CHN
CHNCHNCHN
CHN
CHNCHN
CHNCHNCHN
CHNCHNCHNCHN
CHNCHNCHNCHNCHNCHN
CHN
CHN
CHN
CHN
CHN
CHN
CHNCHN
CHN
CHNCHNCHNCHNCHN
CHNCHN
CHNCHNCHNCHN
CHNCHNCHN
CHN
CHNCHNCHN
CHNCHNCHN
CHN
CHNCHN
CHNCHNCHN
CHNCHN CHN
CHNCHN
CHNCHNCHNCHNCHN
CHNCHNCHN
CHNCHN
CHNCHNCHN
CHN
CHNCHNCOL COLCOLCOL COLCOL COLCOLCOLCOLCOL COLCOL COLCOL COLCOLCOL COLCOLCOL COLCOLCOLCOL COLCOLCOL COL COLCOLCOL COL COLCOLCOLCOLCOL COLCOL COL COLCOL COLCOLCOLCOLCOL COL COLCOLCOLCOL COLCOL COLCOL COLCOL COL COLCOL COLCOLCOLCOLCOL COLCOL COLCOL COL COLCOL COLCOLCOL COL COLCOLCOLCOLCOLCOLCOL COLCOLCOLCOL COL COL COLCOL COLCOLCOL COLCOLCOL COL DEU
DEUDEUDEU
DEU
DEUDEU
DEUDEU
DEUDEU
DEU
DEUDEU
DEU
DEUDEUDEUDEU
DEU
DEUDEUDEU
DEU
DEU
DEUDEU
DEU
DEUDEU
DEUDEUDEU
DEU
DEUDEU
DEU
DEU
DEU
DEU
DEU
DEU
DEU
DEU
DEUDEU
DEU
DEU
DEU
DEU
DEUDEU
DEUDEUDEUDEU
DEU
DEUDEUDEU
DEUDEUDEU
DEUDEU
DEUDEU
DEU
DEUDEUDEU
DEU
DEU
DEUDEU
DEU
DEU
DEU
DEU
DEU
DEU
DEU
DEUDEUDEU
DEUDEU
DEU
DEUDEU
DEU
DEU
DEU
DEUDEU
DEU
DEU
DEU
DEU
DEU
DNKDNKDNKDNKDNK DNKDNKDNK
DNKDNK DNKDNK DNKDNKDNKDNKDNKDNK DNKDNK DNKDNKDNK DNKDNKDNKDNKDNKDNK DNKDNKDNK DNKDNKDNKDNKDNK DNKDNKDNK DNKDNKDNKDNKDNK DNK DNKDNKDNKDNK DNKDNKDNK DNKDNKDNKDNK DNK DNKDNKDNK DNKDNKDNKDNKDNK DNK DNKDNK DNKDNKDNKDNKDNKDNKDNKDNKDNKDNK DNKDNKDNKDNK
DNKDNKDNKDNK DNKDNKDNKDNK DNKDNK DNKDNK DNKDNKDNK DNK DNKDZA DZADZA DZADZADZADZA DZA DZADZADZADZA DZADZA DZADZA DZADZADZADZA DZA DZADZADZA DZADZADZADZA DZADZADZA DZADZA DZADZA DZA DZADZADZADZA DZADZADZA DZADZADZADZA DZADZADZADZADZADZA DZA DZADZADZA DZADZADZA DZADZA DZADZADZADZADZA DZA DZADZA DZADZA DZA DZADZADZA DZADZA DZADZA DZADZADZA DZADZA DZADZA DZADZADZADZA DZADZADZA DZADZA DZADZA DZADZAEGY EGY EGYEGYEGY EGYEGYEGY EGYEGY EGYEGY EGYEGYEGYEGY EGY EGYEGYEGY EGYEGY EGYEGY EGYEGY EGYEGYEGY EGY EGYEGY EGYEGY EGYEGYEGYEGYEGY EGYEGYEGYEGY EGY EGYEGY EGYEGYEGY EGYEGYEGY EGYEGY EGY EGYEGY EGYEGY EGYEGY EGYEGYEGYEGY EGYEGY EGYEGY EGYEGY EGY EGYEGYEGYEGYEGYEGY EGYEGY EGY EGYEGYEGY EGY EGYEGYEGY EGYEGY EGYEGY EGYEGYEGYEGY EGYEGYEGYEGY ESPESP ESP
ESPESPESPESP
ESPESP ESPESP
ESP ESPESP ESP ESPESPESPESP
ESP ESPESP ESPESP ESP ESPESP
ESPESPESPESPESPESPESPESPESP ESP ESPESP
ESPESPESP ESPESPESP
ESPESP ESP ESPESP ESPESPESP ESPESP
ESPESP ESPESP
ESPESPESPESPESPESPESP ESPESP ESPESPESPESP
ESPESPESP ESP
ESP ESP ESPESPESP ESPESP ESPESPESP ESPESPESPESP ESP ESPESP ESPESP ESP ESPESPESP ESPFINFIN FIN FINFIN FINFINFIN FINFINFINFIN FIN FINFINFIN FINFIN FINFIN FINFIN FIN FINFINFINFIN FIN FIN FINFIN FINFINFINFINFIN FIN FIN FINFINFIN FINFINFIN FINFINFINFINFIN FIN FIN FINFINFIN FINFINFINFIN FINFINFIN FINFIN FINFINFIN FIN FINFIN FINFIN FINFIN FINFIN FINFIN FINFIN FIN FINFINFIN FINFINFINFINFINFINFIN FINFIN FINFIN FINFINFINFINFIN FIN
FRAFRA
FRA
FRA
FRA
FRAFRAFRA
FRA
FRAFRA
FRAFRAFRAFRAFRA
FRA
FRAFRAFRAFRA
FRA
FRA
FRAFRAFRA
FRAFRA
FRA
FRAFRA
FRAFRAFRA
FRAFRA
FRA
FRAFRA
FRAFRA
FRA
FRAFRAFRA
FRAFRA
FRAFRA
FRAFRAFRA
FRAFRAFRA
FRA
FRA
FRAFRAFRA
FRAFRA
FRAFRAFRA
FRAFRA
FRA
FRA
FRAFRA
FRAFRAFRA
FRA
FRA
FRA
FRAFRAFRAFRA
FRAFRA
FRA
FRAFRAFRAFRAFRAFRAFRA
FRAFRA
FRAFRA
FRAFRA
FRA
FRAFRAGBRGBR
GBRGBRGBRGBR
GBR
GBRGBRGBRGBRGBR
GBRGBR GBRGBR GBR
GBR
GBRGBRGBRGBRGBR
GBRGBRGBRGBRGBRGBR
GBR GBRGBR
GBR
GBRGBR
GBRGBRGBRGBR
GBRGBRGBR GBR
GBR
GBRGBR GBR
GBRGBR
GBR
GBR
GBRGBR
GBRGBR GBRGBR
GBRGBR
GBRGBRGBRGBRGBRGBR
GBR
GBRGBRGBR
GBRGBR
GBR
GBR
GBRGBRGBR
GBR
GBR
GBR
GBRGBRGBRGBR
GBRGBRGBR
GBRGBR
GBRGBR
GBRGBRGBR
GBRGBR
GBRGBR
GBRGBR
GBRGRCGRC GRC GRCGRC GRCGRC GRCGRCGRC GRCGRC GRC GRCGRC GRCGRC GRCGRC GRCGRCGRCGRC GRC GRCGRCGRCGRC GRCGRC GRCGRCGRC GRCGRCGRCGRCGRCGRC GRCGRC GRCGRCGRC GRCGRC GRCGRCGRCGRCGRC GRCGRC GRCGRC GRC GRCGRCGRC GRC GRCGRCGRCGRCGRCGRC GRCGRCGRCGRC GRC GRCGRCGRCGRCGRC GRC GRCGRC GRCGRCGRCGRC GRCGRC GRCGRCGRCGRC GRC GRCGRCGRCGRCGRCGRCGRCGRC GRCGRCINDIND INDINDINDIND
INDIND INDIND INDIND INDINDINDINDIND INDIND IND INDINDIND
INDIND
IND INDINDIND INDINDINDINDIND
IND INDINDINDINDINDIND INDINDINDIND INDINDINDIND
INDINDIND
INDIND IND INDINDINDIND IND INDIND
INDIND
INDIND
INDIND IND INDINDIND
INDIND INDINDIND IND INDINDINDINDIND INDINDINDIND IND INDIND
INDINDIND INDIND INDIND INDIND
INDIRLIRLIRLIRL
IRLIRLIRL IRL
IRLIRL IRL
IRLIRL
IRLIRLIRLIRLIRL
IRLIRLIRLIRLIRL
IRL IRLIRLIRL IRLIRL IRLIRLIRLIRL IRLIRLIRL IRL
IRLIRLIRLIRLIRLIRL
IRL IRL IRLIRLIRL IRLIRLIRLIRL
IRLIRL
IRL IRLIRLIRL
IRLIRLIRL IRLIRLIRL
IRL IRLIRLIRL
IRLIRLIRLIRLIRL IRLIRLIRLIRLIRL
IRLIRL IRL
IRL IRLIRLIRLIRLIRL IRL
IRL
IRL IRLIRL IRL
IRLIRLIRL
IRL IRLIRLIRL ISR ISRISR ISR ISRISR ISRISRISRISRISR ISR ISRISR ISRISRISRISR ISRISRISR ISR ISRISR ISRISR ISRISR ISRISRISRISR ISRISRISR ISR ISRISRISR ISRISR ISRISR ISRISR ISRISRISRISR ISR ISRISRISRISR ISR ISRISR ISRISR ISRISRISR ISRISR ISRISRISR ISR ISRISRISR ISRISR ISRISRISRISRISRISR ISRISRISR ISRISRISR ISR ISRISRISR ISR ISRISR ISR ISRISRISRISRISRISR ISRITA
ITA ITAITAITAITA
ITA
ITAITAITAITAITA
ITAITA
ITAITA
ITAITA
ITAITA
ITAITA
ITAITAITA
ITA
ITA
ITA
ITAITAITAITA
ITA
ITAITAITAITA ITAITAITAITA
ITA
ITA
ITAITA
ITAITA
ITAITA
ITAITA
ITAITAITA
ITAITA
ITAITA
ITA
ITAITAITAITAITA ITAITA
ITAITA
ITAITAITA
ITAITAITA
ITA ITAITA
ITAITA
ITAITAITA
ITAITA
ITA ITAITAITAITA
ITAITA ITAITAITA
ITAITAITAITAITAITA
JPNJPNJPNJPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPNJPN
JPN
JPN
JPN
JPN
JPN
JPN
JPNJPN
JPN
JPNJPN
JPN
JPN
JPNJPN
JPN
JPN
JPN
JPN
JPN
JPNJPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPNJPN
JPN
JPN
JPN
JPN
JPNJPN
JPNJPN
JPN
JPN
JPN
JPNJPN
JPN
JPN
JPN
JPN
JPN
JPN
JPNJPN
JPN
JPNJPN
JPNJPN
JPN
JPNJPN
JPN
JPN
JPN
JPN
JPN
JPNJPN
JPNJPN
JPNJPN
JPNJPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPNKOR
KORKOR
KORKORKOR
KOR
KORKORKOR
KORKOR
KORKOR
KOR
KORKOR
KORKOR
KORKORKOR
KORKOR
KOR
KOR
KOR
KORKOR
KORKORKOR
KOR
KOR
KORKORKORKOR
KOR
KORKORKOR
KOR
KORKOR
KORKOR
KOR
KORKOR
KORKORKORKOR
KOR
KOR
KOR
KOR
KORKOR
KOR
KOR
KORKORKOR
KORKOR
KOR
KORKORKOR
KOR
KOR
KORKOR
KOR
KORKORKOR
KORKOR
KORKORKOR
KORKORKORKOR
KORKORKOR
KORKOR
KORKOR
KOR
KOR
KOR
KOR
KORMEXMEXMEX
MEXMEX MEXMEX
MEXMEX
MEXMEXMEX
MEXMEX
MEXMEXMEX MEX
MEXMEX MEXMEX
MEX
MEX MEXMEXMEX MEX MEXMEX
MEXMEX
MEX
MEXMEX
MEXMEX
MEXMEXMEXMEXMEX MEXMEXMEXMEXMEXMEXMEX
MEXMEXMEXMEX
MEXMEX
MEX MEXMEXMEXMEX MEX
MEXMEXMEXMEXMEX
MEXMEX
MEXMEX
MEXMEXMEX
MEXMEX
MEXMEXMEX
MEXMEXMEXMEX
MEXMEXMEX MEX
MEXMEX
MEXMEXMEX
MEXMEXMEX MEXMEX
MEXMEX
MEXMEXMYSMYS MYSMYSMYS
MYSMYSMYS MYSMYSMYSMYS MYSMYSMYSMYSMYS MYSMYS
MYSMYSMYSMYS
MYSMYS
MYSMYSMYSMYSMYS
MYSMYSMYSMYSMYS MYSMYS
MYSMYS MYSMYS MYSMYS MYSMYSMYSMYS MYSMYS
MYSMYSMYSMYS MYSMYSMYSMYSMYSMYS
MYSMYSMYSMYS MYSMYS
MYS MYSMYSMYSMYS
MYS MYSMYSMYS
MYSMYS MYSMYSMYS MYSMYS
MYS MYSMYSMYS
MYSMYS MYSMYS
MYSMYSMYS
MYSMYSMYSMYS
MYSMYSMYSMYSNOR NOR NORNORNORNORNOR NORNOR NORNORNOR NOR NORNORNOR NORNORNORNORNOR NORNOR NORNOR NORNORNOR NOR NORNOR NORNOR NORNORNOR NORNOR NORNORNOR NORNORNORNOR NORNORNORNOR NORNORNORNORNOR NOR NORNOR NORNORNORNOR NORNOR NORNORNOR NORNOR NORNOR NORNOR NOR NOR NORNORNORNOR NORNOR NORNORNORNOR NORNORNORNORNOR NOR NORNOR NORNORNORNOR NOR NORNOR NORNZL NZLNZLNZL NZLNZL NZLNZLNZL NZLNZL NZLNZL NZLNZL NZL NZLNZL NZLNZL NZLNZL NZLNZLNZL NZL NZLNZLNZL NZLNZL NZLNZL NZL NZLNZLNZLNZL NZLNZL NZLNZLNZLNZL NZL NZLNZLNZLNZL NZLNZLNZL NZL NZLNZL NZLNZL NZLNZL NZLNZLNZLNZL NZLNZL NZLNZL NZLNZL NZLNZLNZL NZLNZL NZLNZL NZLNZL NZLNZLNZL NZLNZLNZLNZL NZL NZLNZL NZL NZLNZLNZL NZLNZLNZL NZLNZLNZL NZLNZLPAK PAKPAKPAKPAKPAKPAKPAK PAK PAKPAKPAK PAKPAK PAKPAKPAK PAKPAK PAKPAK PAKPAKPAKPAKPAK PAK
PAKPAK PAKPAK PAK PAKPAKPAK PAKPAKPAKPAKPAK PAK PAKPAK PAK PAKPAK PAK PAKPAKPAK
PAK PAK PAK PAKPAKPAK PAKPAK PAKPAK PAK PAKPAKPAK PAKPAKPAKPAKPAKPAKPAKPAK PAK PAKPAKPAK PAKPAKPAK PAKPAK PAKPAKPAK PAKPAK PAKPAKPAKPAK PAKPAKPAKPAKPAKPAKPAK PAKPAK PAKPERPER PERPER PER PERPER PER PERPERPER PERPER PERPERPER PERPERPERPER PERPER PERPER PERPER PERPER PERPERPER PERPER PERPER PER PERPERPERPERPER PERPER PERPERPER PERPER PERPERPER PERPERPER PERPERPERPERPERPER PER PER PERPER PERPER PERPER PERPER PER PERPER PERPER PERPER PER PERPERPER PERPER PERPERPER PERPER PERPER PERPERPER PERPERPERPER PERPERPER PHLPHL PHLPHL PHLPHLPHLPHL PHLPHL PHLPHL PHLPHLPHLPHLPHL PHLPHL PHLPHL PHLPHL PHL PHLPHLPHLPHLPHL PHLPHL PHLPHL PHLPHLPHL
PHLPHL PHLPHLPHLPHL PHL PHLPHLPHL PHLPHLPHLPHLPHL PHL PHLPHLPHL PHLPHLPHLPHLPHLPHL PHLPHLPHLPHLPHLPHL PHLPHL PHL PHL PHLPHLPHLPHL PHL PHLPHL PHLPHL PHL PHL
PHL PHLPHL PHLPHLPHLPHL PHLPHL PHLPHL PHLPHLPHLPHLPHLPHL PHLPRTPRT PRTPRT PRT PRTPRTPRTPRTPRTPRTPRT PRTPRT PRTPRT PRTPRTPRT PRTPRT PRTPRTPRT PRT PRTPRT PRTPRT PRTPRTPRTPRT PRT PRTPRTPRTPRT PRTPRTPRT PRTPRT PRTPRTPRT PRT PRTPRTPRTPRTPRT PRT PRTPRTPRT PRTPRT PRTPRT PRTPRTPRTPRTPRT PRT PRTPRTPRT PRT PRTPRT PRTPRTPRT PRTPRTPRT PRTPRTPRT PRTPRT PRTPRTPRTPRTPRT PRTPRTPRTPRTPRT PRTPRTPRTPRTPRTPRT PRT RUSRUSRUS RUSRUS RUS RUSRUSRUS RUSRUSRUSRUSRUSRUSRUSRUSRUSRUSRUS RUS RUSRUS RUSRUSRUS RUSRUSRUSRUSRUSRUSRUSRUS RUS RUSRUSRUS RUSRUSRUS RUSRUSRUSRUS RUSRUS RUSRUS RUSRUS RUSRUSRUSRUS RUSRUSRUSRUSRUS RUSRUSRUS RUS RUSRUSRUS RUSRUS RUS RUSRUSRUS RUSRUS RUSRUS RUSRUSRUS RUSRUS RUSRUSRUSRUSRUSRUS RUSRUS RUS RUSRUSRUSRUSRUSRUS RUSRUSRUS SWESWESWESWESWESWESWE
SWESWESWE
SWESWE SWESWESWESWE
SWESWE SWESWESWE SWE SWESWE SWESWE SWESWE
SWESWESWE SWE SWE SWESWESWE SWESWESWE
SWESWE SWESWESWESWESWE SWE SWESWE SWESWE
SWESWE SWE SWESWE SWESWE SWE
SWESWESWESWE
SWESWESWE SWESWESWE
SWE SWESWESWESWE SWESWESWE
SWESWE SWESWESWESWESWE
SWESWE SWESWESWE
SWESWESWE SWESWESWE
SWESWESWESWESWETURTURTUR TUR TURTURTURTURTURTUR TURTURTUR TURTUR TURTUR TURTURTUR TURTURTURTUR TURTURTUR TURTUR TUR TURTURTUR TURTUR TURTUR TURTUR TURTURTURTUR TURTUR TURTURTURTURTUR TURTURTURTUR TURTURTUR TURTURTUR TURTUR TUR TUR TURTUR TURTURTURTUR TUR TUR TURTUR TURTURTUR TURTUR TURTURTURTUR TURTURTUR TURTUR TUR TURTUR TURTUR TURTURTUR TURTURTURTUR
USAUSA
USA
USAUSA
USA
USA
USAUSA
USA
USAUSAUSAUSAUSAUSA
USAUSA
USAUSA
USAUSAUSA
USAUSA
USAUSA
USAUSA
USAUSAUSA
USAUSA
USAUSA
USAUSAUSAUSA
USAUSAUSA
USAUSA
USAUSAUSA
USAUSAUSAUSAUSAUSA USA
USAUSAUSA
USAUSA
USAUSA
USAUSA USA
USAUSA
USA
USA
USAUSAUSAUSAUSAUSA
USAUSA
USAUSAUSAUSAUSA
USA
USAUSA
USAUSAUSAUSA
USAUSAUSAUSAUSA
USAUSAUSA
USAUSAUSA VENVENVENVENVEN VEN VENVEN VEN VENVENVEN VEN VENVEN VEN VENVEN VENVENVENVEN VENVENVEN VENVEN VENVENVEN VENVENVEN VENVENVENVENVENVENVEN VENVEN VENVENVENVENVEN VEN VENVENVEN VENVEN VEN VENVENVEN VEN VENVEN VENVEN VENVEN VENVEN VENVEN VEN VENVEN VENVENVEN VENVENVEN VENVEN VENVEN VENVEN VEN VENVENVENVENVENVEN VENVENVEN VENVENVEN VENVEN VENVENZAF ZAFZAF ZAF ZAFZAF ZAFZAFZAF ZAFZAF ZAFZAF ZAFZAFZAF ZAFZAFZAF ZAF ZAFZAFZAF ZAFZAFZAF ZAFZAFZAF ZAFZAF ZAF ZAFZAFZAFZAF ZAFZAFZAF ZAFZAFZAF ZAFZAF ZAFZAFZAFZAFZAF ZAF ZAF ZAFZAFZAF ZAFZAFZAF ZAF ZAFZAFZAFZAFZAFZAFZAF ZAFZAFZAF ZAFZAF ZAFZAFZAFZAFZAF ZAFZAFZAFZAF ZAF ZAFZAF ZAFZAFZAFZAFZAFZAF ZAF ZAFZAF ZAFZAF ZAF ZAFZAF ZAFZAFZAF ZAF
-4.0
4-4
.02
-4-3
.98
-3.9
6-3
.94
Estim
ated
exc
hang
e ra
te e
last
icity
-.4 -.2 0 .2 .4Exchange rate shock
Specification 3: REER a la McGuirkExchange rate shock vs. magnitude of exchange rate bias
(b) McGuirk
ARG ARGARGARGARG ARGARG ARGARGARG ARGARGARGARG ARGARG ARG ARGARG ARG ARGARGARGARGARG ARG ARGARG ARGARGARGARGARG ARGARGARGARG ARG ARGARGARGARGARGARG ARGARG ARGARG ARG ARGARGARGARG ARGARG ARG ARGARG ARGARGARG ARG ARG ARGARG ARGARGARGARG ARG ARGARGARG ARGARGARGARG ARGARGARGARGARGARGARGARG ARGARG ARG ARGARG ARG ARGARGARGARG ARGARGARG ARGARGAUS AUSAUS AUSAUS AUS AUS AUSAUSAUS AUSAUSAUSAUS AUSAUSAUSAUS AUS AUSAUS AUSAUSAUS AUSAUS AUSAUSAUS AUSAUSAUSAUS AUS AUSAUSAUSAUS AUSAUSAUSAUS AUSAUS AUSAUSAUS AUSAUS AUS AUSAUSAUSAUS AUS AUSAUS AUSAUS AUSAUSAUS AUS AUS AUS AUSAUS AUSAUSAUSAUS AUS AUSAUSAUS AUSAUS AUSAUSAUS AUSAUSAUSAUSAUSAUS AUSAUSAUS AUSAUSAUS AUSAUSAUSAUS AUSAUS AUSAUS AUTAUT AUTAUTAUTAUTAUT AUTAUT AUT AUT AUTAUTAUTAUT AUT AUTAUT AUT AUTAUTAUT AUTAUT AUTAUT AUTAUT AUTAUTAUT AUT AUT AUTAUTAUT AUTAUT AUT AUT AUTAUTAUTAUTAUT AUT AUTAUT AUTAUT AUTAUT AUTAUTAUTAUT AUT AUTAUTAUT AUTAUT AUTAUT AUTAUTAUTAUT AUTAUTAUTAUT AUTAUTAUT AUT AUTAUT AUTAUTAUTAUT AUTAUTAUT AUTAUTAUT AUTAUT AUTAUTAUT AUTAUT AUTAUT AUTAUTAUT BEL BELBELBEL BELBEL BELBELBELBEL BEL BEL BELBEL BEL BELBEL BELBELBELBELBEL BEL BELBELBELBEL BELBEL BELBELBEL BELBEL BELBELBELBEL BEL BELBEL BELBELBELBELBELBEL BELBELBEL BELBELBEL BEL BELBELBELBELBEL BELBELBEL BELBEL BELBELBEL BELBELBEL BELBELBEL BELBEL BELBEL BELBELBEL BELBELBELBELBEL BELBEL BELBELBEL BEL BELBEL BELBEL BELBEL BELBEL BELBRABRA BRABRABRABRA BRABRA BRABRABRA BRABRA BRABRA BRABRABRA BRABRABRABRA BRABRA BRABRABRABRABRA BRABRA BRA BRABRA BRABRABRA BRABRABRABRA BRABRABRABRABRA BRA BRABRABRA BRABRA BRABRABRA BRABRABRABRA BRABRABRA BRABRA BRA BRABRABRA BRABRA BRABRABRA BRABRA BRABRABRA BRABRABRABRABRA BRABRA BRABRABRABRA BRABRA BRABRABRABRA BRABRA BRABRA BRACANCANCANCAN CAN CANCAN CANCAN CAN CANCAN CAN CANCAN CANCANCAN CANCAN CANCANCANCAN CANCAN CANCANCAN CANCANCAN CAN CAN CANCANCANCAN CANCANCANCANCAN CANCAN CAN CANCAN CANCAN CANCAN CANCANCANCANCAN CANCAN CAN CANCAN CANCANCAN CANCAN CANCAN CAN CANCANCAN CANCAN CANCANCAN CANCAN CAN CANCAN CANCAN CANCANCANCAN CAN CANCANCAN CANCANCANCAN CANCAN CANCHE CHECHECHECHECHECHE CHECHECHE CHECHE CHECHE CHECHECHE CHE CHECHECHECHECHECHE CHECHECHE CHE CHECHECHE CHECHE CHECHECHECHECHE CHECHECHECHE CHECHE CHECHE CHECHE CHECHECHECHE CHECHECHECHE CHECHE CHECHE CHECHE CHECHECHECHE CHE CHECHECHE CHECHECHE CHE CHECHECHECHECHE CHECHE CHE CHECHECHE CHECHECHECHE CHECHECHECHE CHE CHECHE CHECHECHE CHECHL CHLCHL CHL CHL CHLCHL CHLCHLCHL CHL CHLCHLCHL CHLCHL CHLCHLCHL CHLCHLCHLCHLCHL CHLCHL CHL CHLCHLCHLCHL CHLCHLCHL CHLCHLCHL CHLCHL CHLCHL CHLCHL CHLCHLCHLCHL CHL CHLCHL CHL CHLCHL CHLCHLCHL CHL CHL CHLCHLCHL CHL CHLCHLCHLCHL CHLCHLCHLCHL CHL CHL CHLCHLCHL CHL CHLCHL CHLCHLCHLCHLCHLCHL CHLCHLCHLCHL CHLCHLCHL CHLCHL CHLCHLCHLCHLCHLCHLCHLCHNCHNCHN CHN CHNCHN CHNCHNCHNCHN CHNCHNCHN CHN CHN CHNCHNCHNCHNCHN CHNCHN CHNCHN CHNCHN CHNCHN CHN CHNCHNCHNCHN CHNCHN CHNCHNCHN CHNCHNCHNCHNCHN CHNCHN CHNCHN CHNCHN CHNCHNCHN CHN CHNCHNCHNCHNCHN CHNCHNCHN CHNCHNCHN CHNCHN CHNCHNCHNCHN CHNCHNCHN CHNCHN CHNCHN CHNCHN CHNCHN CHNCHN CHNCHNCHN CHNCHNCHNCHN CHNCHNCHNCHN CHNCHNCHNCHN CHN CHNCOL COLCOLCOL COLCOL COLCOLCOLCOLCOL COLCOL COLCOL COLCOLCOL COLCOLCOL COLCOLCOLCOL COLCOLCOL COL COLCOLCOL COL COLCOLCOLCOLCOL COLCOL COL COLCOL COLCOLCOLCOLCOL COL COLCOLCOLCOL COLCOL COLCOL COLCOL COL COLCOL COLCOLCOLCOLCOL COLCOL COLCOL COL COLCOL COLCOLCOL COL COLCOLCOLCOLCOLCOLCOL COLCOLCOLCOL COL COL COLCOL COLCOLCOL COLCOLCOL COL DEUDEUDEUDEUDEU
DEUDEUDEUDEU DEUDEUDEUDEUDEU
DEU
DEUDEUDEUDEU
DEU
DEUDEUDEU DEUDEU DEUDEU
DEUDEU DEU
DEUDEUDEUDEU
DEU DEU DEUDEU
DEU
DEU DEU
DEU
DEUDEU
DEUDEUDEU
DEUDEU DEUDEU DEUDEUDEU DEUDEUDEUDEUDEU DEUDEUDEUDEUDEUDEUDEUDEU
DEUDEUDEUDEU
DEU
DEUDEUDEU
DEUDEUDEU
DEUDEU
DEUDEU
DEUDEUDEU
DEUDEU
DEUDEU DEU
DEUDEU
DEUDEUDEU
DEUDEU DEU
DEUDEU
DNK DNKDNKDNKDNK DNKDNKDNK DNKDNK DNKDNK DNKDNKDNKDNKDNKDNK DNKDNK DNKDNKDNK DNKDNKDNKDNKDNKDNK DNKDNKDNK DNKDNKDNK DNKDNK DNKDNKDNK DNKDNKDNKDNKDNK DNK DNKDNKDNKDNK DNKDNKDNK DNKDNKDNKDNK DNK DNKDNKDNK DNKDNKDNKDNKDNK DNK DNKDNK DNKDNKDNKDNKDNKDNKDNKDNKDNKDNK DNKDNKDNKDNK DNKDNKDNKDNK DNKDNKDNKDNK DNKDNK DNKDNK DNKDNKDNK DNK DNKDZA DZADZA DZADZADZADZA DZA DZADZADZADZA DZADZA DZADZA DZADZADZADZA DZA DZADZADZA DZADZADZADZA DZADZADZA DZADZA DZADZA DZA DZADZADZADZA DZADZADZA DZADZADZADZA DZADZADZADZADZADZA DZA DZADZADZA DZADZADZA DZADZA DZADZADZADZADZA DZA DZADZA DZADZA DZA DZADZADZA DZADZA DZADZA DZADZADZA DZADZA DZADZA DZADZADZADZA DZADZADZA DZADZA DZADZA DZADZAEGY EGY EGYEGYEGY EGYEGYEGY EGYEGY EGYEGY EGYEGYEGYEGY EGY EGYEGYEGY EGYEGY EGYEGY EGYEGY EGYEGYEGY EGY EGYEGY EGYEGY EGYEGYEGYEGYEGY EGYEGYEGYEGY EGY EGYEGY EGYEGYEGY EGYEGYEGY EGYEGY EGY EGYEGY EGYEGY EGYEGY EGYEGYEGYEGY EGYEGY EGYEGY EGYEGY EGY EGYEGYEGYEGYEGYEGY EGYEGY EGY EGYEGYEGY EGY EGYEGYEGY EGYEGY EGYEGY EGYEGYEGYEGY EGYEGYEGYEGY ESPESP ESPESP ESPESPESP ESPESP ESPESPESP ESPESP ESP ESPESPESPESP ESP ESPESP ESPESP ESP ESPESP ESPESPESPESP ESPESPESPESPESP ESP ESPESP ESPESPESP ESPESPESP ESPESP ESP ESPESP ESPESPESP ESPESP ESPESP ESPESP ESPESPESPESPESPESPESP ESPESP ESPESP ESPESPESP ESPESP ESPESP ESP ESPESPESP ESPESP ESPESPESP ESPESPESPESP ESP ESPESP ESPESP ESP ESPESPESP ESPFINFIN FIN FINFIN FINFINFIN FINFINFINFIN FIN FINFINFIN FINFIN FINFIN FINFIN FIN FINFINFINFIN FIN FIN FINFIN FINFINFINFINFIN FIN FIN FINFINFIN FINFINFIN FINFINFINFINFIN FIN FIN FINFINFIN FINFINFINFIN FINFINFIN FINFIN FINFINFIN FIN FINFIN FINFIN FINFIN FINFIN FINFIN FINFIN FIN FINFINFIN FINFINFINFINFINFINFIN FINFIN FINFIN FINFINFINFINFIN FINFRAFRAFRA FRAFRA FRAFRAFRAFRAFRA FRA FRAFRA FRAFRAFRA FRAFRAFRAFRA FRAFRA FRAFRAFRAFRA FRAFRA FRA FRAFRAFRAFRAFRA FRAFRAFRA FRA FRAFRAFRA FRAFRAFRAFRA FRAFRA FRAFRA FRAFRAFRAFRA FRAFRAFRA FRAFRA FRAFRA FRAFRA FRAFRAFRAFRAFRA FRAFRA FRAFRA FRAFRAFRAFRAFRA FRAFRAFRAFRA FRAFRAFRAFRA FRAFRAFRAFRAFRAFRAFRAFRAFRA FRA FRAFRAFRAFRA FRAFRAGBRGBRGBR GBRGBRGBRGBR GBRGBRGBRGBRGBR GBRGBR GBRGBR GBRGBR GBRGBRGBRGBRGBRGBRGBR GBRGBRGBRGBRGBR GBRGBRGBR GBRGBR GBRGBR GBRGBRGBRGBR GBR GBRGBR GBRGBR GBR GBRGBRGBR GBRGBR GBR GBR GBR GBRGBRGBRGBR GBRGBRGBR GBRGBRGBR GBRGBRGBR GBRGBRGBR GBRGBR GBRGBRGBRGBR GBRGBR GBRGBRGBRGBR GBRGBRGBR GBRGBRGBR GBRGBRGBR GBRGBR GBR GBRGBR GBRGBR GBRGRCGRC GRC GRCGRC GRCGRC GRCGRCGRC GRCGRC GRC GRCGRC GRCGRC GRCGRC GRCGRCGRCGRC GRC GRCGRCGRCGRC GRCGRC GRCGRCGRC GRCGRCGRCGRCGRCGRC GRCGRC GRCGRCGRC GRCGRC GRCGRCGRCGRCGRC GRCGRC GRCGRC GRC GRCGRCGRC GRC GRCGRCGRCGRCGRCGRC GRCGRCGRCGRC GRC GRCGRCGRCGRCGRC GRC GRCGRC GRCGRCGRCGRC GRCGRC GRCGRCGRCGRC GRC GRCGRCGRCGRCGRCGRCGRCGRC GRCGRCINDIND INDINDINDIND INDIND INDIND INDIND INDIND INDINDIND INDIND IND INDINDIND INDIND IND INDINDIND INDINDINDIND INDIND INDINDINDINDIND IND INDINDINDIND INDINDINDIND INDINDIND INDIND IND INDINDINDIND IND INDIND INDIND INDIND INDIND IND INDINDINDIND IND INDINDIND IND INDINDINDINDIND INDINDINDIND IND INDINDIND INDIND INDIND INDIND INDINDIND IRLIRLIRL IRLIRL IRLIRL IRLIRL IRL IRLIRL IRLIRL IRLIRLIRLIRLIRLIRL IRLIRLIRL IRL IRLIRLIRL IRLIRL IRLIRLIRLIRL IRLIRLIRL IRL IRLIRLIRLIRL IRLIRLIRL IRL IRLIRLIRL IRLIRLIRLIRL IRLIRL IRL IRLIRLIRL IRLIRLIRL IRLIRLIRLIRL IRL IRLIRL IRLIRLIRLIRLIRL IRLIRLIRL IRLIRLIRL IRL IRLIRL IRLIRLIRLIRL IRL IRLIRL IRL IRLIRL IRLIRLIRL IRLIRL IRLIRLIRL ISR ISRISR ISR ISRISR ISRISRISRISRISR ISR ISRISR ISRISRISRISR ISRISRISR ISR ISRISR ISRISR ISRISR ISRISRISRISR ISRISRISR ISR ISRISRISR ISRISR ISRISR ISRISR ISRISRISRISR ISR ISRISRISRISR ISR ISRISR ISRISR ISRISRISR ISRISR ISRISRISR ISR ISRISRISR ISRISR ISRISRISRISRISRISR ISRISRISR ISRISRISR ISR ISRISRISR ISR ISRISR ISR ISRISRISRISRISRISR ISR ITAITA ITA ITAITAITAITA ITAITAITAITAITA ITAITAITA ITA ITAITA ITAITA ITAITA ITAITAITA ITAITAITA ITA ITAITAITAITA ITA ITAITAITA ITAITAITAITA ITAITA ITAITA ITAITA ITAITA ITAITA ITAITA ITAITA ITAITAITA ITAITA ITAITAITAITA ITAITAITAITA ITAITA ITAITA ITAITA ITA ITAITA ITAITA ITAITAITA ITAITAITA ITAITA ITAITAITA ITA ITAITAITA ITAITAITAITAITAITA
JPN
JPNJPNJPNJPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPNJPN
JPN
JPN
JPNJPN
JPN
JPN
JPN
JPN
JPN
JPNJPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPNJPN
JPN
JPN
JPN
JPN
JPNJPN
JPNJPN
JPN
JPN
JPN
JPNJPN
JPN
JPN
JPN
JPN
JPN
JPN
JPNJPN
JPN
JPNJPN
JPNJPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPNJPN
JPN
JPN
JPN
JPN
JPNJPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPN
JPNKOR
KORKORKORKORKORKOR
KORKORKORKOR KOR KOR KORKOR
KORKOR KORKOR KORKOR KORKORKORKORKOR
KOR KORKORKOR KORKOR KORKOR KORKORKORKOR
KOR
KORKORKOR KORKOR KOR KORKOR KORKORKOR KOR KORKORKOR
KOR
KORKOR
KORKORKOR KORKOR
KOR KORKORKOR KORKOR KORKORKOR KORKOR
KORKORKOR KORKORKORKOR KORKORKORKOR KORKORKORKORKOR KORKOR KOR KORKOR KORKORKOR
KORKORKORMEXMEXMEX MEXMEX MEXMEXMEXMEX MEXMEXMEX MEXMEX MEXMEXMEX MEX MEXMEX MEXMEXMEX MEX MEXMEXMEX MEX MEXMEXMEX MEXMEX MEXMEXMEX MEX MEXMEXMEXMEX MEX MEXMEXMEXMEXMEXMEXMEXMEX MEXMEXMEX MEXMEX MEX MEXMEXMEXMEX MEXMEXMEXMEX MEXMEXMEX MEX MEXMEXMEX MEXMEXMEX MEX MEXMEXMEX MEXMEXMEXMEX MEXMEXMEX MEXMEX MEX MEXMEXMEX MEXMEXMEX MEXMEX MEXMEX MEXMEXMYSMYS MYSMYSMYS MYSMYSMYS MYSMYSMYSMYS MYSMYSMYSMYSMYS MYSMYS MYSMYSMYS MYS
MYSMYSMYS MYSMYSMYSMYS MYSMYSMYSMYS MYS MYSMYSMYS MYS MYSMYS MYSMYS MYSMYSMYSMYS MYSMYS MYSMYSMYSMYS MYSMYSMYSMYSMYS
MYS MYS MYSMYSMYS MYSMYSMYS MYSMYSMYS MYSMYS MYSMYS MYSMYSMYS MYSMYSMYS MYSMYS MYS MYSMYSMYS MYSMYS MYSMYS
MYSMYSMYS MYSMYSMYSMYS MYSMYSMYSMYSNOR NOR NORNORNORNORNOR NORNOR NORNORNOR NOR NORNORNOR NORNORNORNORNOR NORNOR NORNOR NORNORNOR NOR NORNOR NORNOR NORNORNOR NORNOR NORNORNOR NORNORNORNOR NORNORNORNOR NORNORNORNORNOR NOR NORNOR NORNORNORNOR NORNOR NORNORNOR NORNOR NORNOR NORNOR NOR NOR NORNORNORNOR NORNOR NORNORNORNOR NORNORNORNORNOR NOR NORNOR NORNORNORNOR NOR NORNOR NORNZL NZLNZLNZL NZLNZL NZLNZLNZL NZLNZL NZLNZL NZLNZL NZL NZLNZL NZLNZL NZLNZL NZLNZLNZL NZL NZLNZLNZL NZLNZL NZLNZL NZL NZLNZLNZLNZL NZLNZL NZLNZLNZLNZL NZL NZLNZLNZLNZL NZLNZLNZL NZL NZLNZL NZLNZL NZLNZL NZLNZLNZLNZL NZLNZL NZLNZL NZLNZL NZLNZLNZL NZLNZL NZLNZL NZLNZL NZLNZLNZL NZLNZLNZLNZL NZL NZLNZL NZL NZLNZLNZL NZLNZLNZL NZLNZLNZL NZLNZLPAK PAKPAKPAKPAKPAKPAKPAK PAK PAKPAKPAK PAKPAK PAKPAKPAK PAKPAK PAKPAK PAKPAKPAKPAKPAK PAKPAK PAK PAKPAK PAK PAKPAKPAK PAKPAKPAKPAKPAK PAK PAKPAK PAK PAKPAK PAK PAKPAKPAKPAK PAK PAK PAKPAKPAK PAKPAK PAKPAK PAK PAKPAKPAK PAKPAKPAKPAKPAKPAKPAKPAK PAK PAKPAKPAK PAKPAKPAK PAKPAK PAKPAKPAK PAKPAK PAKPAKPAKPAK PAKPAKPAKPAKPAK PAKPAK PAKPAK PAKPERPER PERPER PER PERPER PER PERPERPER PERPER PERPERPER PERPERPERPER PERPER PERPER PERPER PERPER PERPERPER PERPER PERPER PER PERPERPERPERPER PERPER PERPERPER PERPER PERPERPER PERPERPER PERPERPERPERPERPER PER PER PERPER PERPER PERPER PERPER PER PERPER PERPER PERPER PER PERPERPER PERPER PERPERPER PERPER PERPER PERPERPER PERPERPERPER PERPERPER PHLPHL PHLPHL PHLPHLPHLPHL PHLPHL PHLPHL PHLPHLPHLPHLPHL PHLPHL PHLPHL PHLPHL PHL PHLPHLPHLPHLPHL PHLPHL PHLPHL PHLPHLPHL PHLPHL PHLPHLPHLPHL PHL PHLPHLPHL PHLPHLPHLPHLPHL PHL PHLPHLPHL PHLPHLPHLPHL PHLPHL PHLPHLPHLPHLPHLPHL PHLPHL PHL PHL PHLPHLPHLPHL PHL PHLPHL PHLPHL PHL PHLPHL PHLPHL PHLPHLPHLPHL PHLPHL PHLPHL PHLPHLPHLPHLPHLPHL PHLPRTPRT PRTPRT PRT PRTPRTPRTPRTPRTPRTPRT PRTPRT PRTPRT PRTPRTPRT PRTPRT PRTPRTPRT PRT PRTPRT PRTPRT PRTPRTPRTPRT PRT PRTPRTPRTPRT PRTPRTPRT PRTPRT PRTPRTPRT PRT PRTPRTPRTPRTPRT PRT PRTPRTPRT PRTPRT PRTPRT PRTPRTPRTPRTPRT PRT PRTPRTPRT PRT PRTPRT PRTPRTPRT PRTPRTPRT PRTPRTPRT PRTPRT PRTPRTPRTPRTPRT PRTPRTPRTPRTPRT PRTPRTPRTPRTPRTPRT PRT RUSRUSRUS RUSRUS RUS RUSRUSRUS RUSRUSRUSRUSRUSRUSRUSRUSRUSRUSRUS RUS RUSRUS RUSRUSRUS RUSRUSRUSRUSRUSRUSRUSRUS RUS RUSRUSRUS RUSRUSRUS RUSRUSRUSRUS RUSRUS RUSRUS RUSRUS RUSRUSRUSRUS RUSRUSRUSRUSRUS RUSRUSRUS RUS RUSRUSRUS RUSRUS RUS RUSRUSRUS RUSRUS RUSRUS RUSRUSRUS RUSRUS RUSRUSRUSRUSRUSRUS RUSRUS RUS RUSRUSRUSRUSRUSRUS RUSRUSRUS SWESWESWESWE SWESWESWE SWESWESWE SWESWE SWESWESWESWE SWESWE SWESWESWE SWE SWESWE SWESWE SWESWESWE SWESWE SWE SWE SWESWESWE SWESWESWESWE SWE SWESWESWESWESWE SWE SWESWE SWESWE SWESWE SWE SWESWE SWESWE SWESWESWE SWESWESWE SWESWE SWESWESWE SWE SWESWESWESWE SWESWESWE SWESWE SWESWESWESWE SWESWESWE SWESWESWE SWESWESWE SWESWESWE SWESWESWESWE SWETURTURTUR TUR TURTURTURTURTURTUR TURTURTUR TURTUR TURTUR TURTURTUR TURTURTURTUR TURTURTUR TURTUR TUR TURTURTUR TURTUR TURTUR TURTUR TURTURTURTUR TURTUR TURTURTURTURTUR TURTURTURTUR TURTURTUR TURTURTUR TURTUR TUR TUR TURTUR TURTURTURTUR TUR TUR TURTUR TURTURTUR TURTUR TURTURTURTUR TURTURTUR TURTUR TUR TURTUR TURTUR TURTURTUR TURTURTURTURUSA
USAUSA
USAUSA
USA
USA
USAUSA
USA
USAUSAUSAUSAUSAUSA
USA
USAUSA
USA
USAUSA
USA
USAUSA
USA
USAUSAUSA
USAUSAUSA
USAUSA
USAUSA
USAUSAUSAUSA
USAUSAUSA
USAUSA
USAUSAUSA
USAUSAUSAUSAUSAUSA USA
USAUSAUSA
USA
USA
USAUSA
USAUSA USA
USA USA
USA
USA
USAUSAUSAUSA
USAUSA
USA
USA
USAUSAUSAUSAUSA
USA
USA USA
USAUSAUSAUSA
USAUSAUSAUSAUSA
USAUSA
USAUSA
USAUSA VENVENVENVENVEN VEN VENVEN VEN VENVENVEN VEN VENVEN VEN VENVEN VENVENVENVEN VENVENVEN VENVEN VENVENVEN VENVENVEN VENVENVENVENVENVENVEN VENVEN VENVENVENVENVEN VEN VENVENVEN VENVEN VEN VENVENVEN VEN VENVEN VENVEN VENVEN VENVEN VENVEN VEN VENVEN VENVENVEN VENVENVEN VENVEN VENVEN VENVEN VEN VENVENVENVENVENVEN VENVENVEN VENVENVEN VENVEN VENVENZAF ZAFZAF ZAF ZAFZAF ZAFZAFZAF ZAFZAF ZAFZAF ZAFZAFZAF ZAFZAFZAF ZAF ZAFZAFZAF ZAFZAFZAF ZAFZAFZAF ZAFZAF ZAF ZAFZAFZAFZAF ZAFZAFZAF ZAFZAFZAF ZAFZAF ZAFZAFZAFZAFZAF ZAF ZAF ZAFZAFZAF ZAFZAFZAF ZAF ZAFZAFZAFZAFZAFZAFZAF ZAFZAFZAF ZAFZAF ZAFZAFZAFZAFZAF ZAFZAFZAFZAF ZAF ZAFZAF ZAFZAFZAFZAFZAFZAF ZAF ZAFZAF ZAFZAF ZAF ZAFZAF ZAFZAFZAF ZAF
-4.0
4-4
.02
-4-3
.98
-3.9
6Es
timat
ed e
xcha
nge
rate
ela
stic
ity
-.4 -.2 0 .2 .4Exchange rate shock
Specification 4: dln approximationExchange rate shock vs. magnitude of exchange rate bias
(c) Log-approximation
ARG ARGARGARGARG ARGARG ARGARGARG ARGARGARGARG ARGARG ARG ARGARGARG ARGARGARGARGARG ARG ARGARG ARGARGARGARGARG ARGARGARGARG ARG ARGARGARGARGARGARG ARGARG ARGARG ARG ARGARGARGARG ARGARG ARGARGARG ARGARGARG ARG ARG ARGARG ARGARGARGARG ARG ARGARGARG ARGARGARGARG ARGARGARGARGARGARGARGARG ARGARGARG ARGARG ARG ARGARGARGARG ARGARGARG ARGARGAUS AUSAUSAUSAUS AUS AUS AUSAUSAUS AUSAUSAUSAUS AUSAUSAUSAUS AUS AUSAUS AUSAUSAUS AUSAUS AUSAUSAUS AUSAUSAUSAUS AUS AUSAUSAUSAUS AUSAUSAUSAUS AUSAUS AUSAUSAUS AUSAUS AUSAUSAUSAUSAUS AUS AUSAUS AUSAUSAUSAUSAUS AUS AUS AUS AUSAUS AUSAUSAUSAUS AUS AUSAUSAUS AUSAUS AUSAUSAUS AUSAUSAUSAUSAUSAUS AUSAUSAUS AUSAUSAUS AUSAUSAUSAUS AUSAUS AUSAUS AUTAUT AUTAUTAUTAUTAUT AUTAUT AUT AUTAUTAUTAUTAUT AUT AUTAUTAUT AUTAUTAUT AUTAUT AUTAUT AUTAUT AUTAUTAUT AUT AUT AUTAUTAUT AUTAUT AUT AUT AUTAUTAUTAUTAUT AUT AUTAUT AUTAUT AUTAUT AUTAUTAUTAUT AUT AUTAUTAUT AUTAUT AUTAUT AUTAUTAUTAUT AUTAUTAUTAUT AUTAUTAUT AUT AUTAUT AUTAUTAUTAUT AUTAUTAUT AUTAUTAUT AUTAUT AUTAUTAUT AUTAUT AUTAUT AUTAUTAUT BEL BELBELBEL BELBEL BELBELBELBEL BEL BELBELBEL BEL BELBEL BELBELBELBELBEL BEL BELBELBELBEL BELBEL BELBELBEL BELBEL BELBELBELBEL BEL BELBEL BELBELBELBELBELBEL BELBELBEL BELBELBEL BEL BELBELBELBELBEL BELBELBEL BELBEL BELBELBEL BELBELBEL BELBELBEL BELBEL BELBEL BELBELBEL BELBELBELBELBEL BELBEL BELBELBEL BEL BELBEL BELBEL BELBEL BELBEL BELBRABRA BRABRABRABRABRABRA BRABRABRA BRABRA BRABRA BRABRABRA BRABRABRABRA BRABRA BRABRABRABRABRA BRABRA BRA BRABRABRABRABRA BRABRABRABRA BRABRABRABRABRA BRA BRABRABRA BRABRA BRABRABRA BRABRABRABRABRABRABRA BRABRA BRA BRABRABRA BRABRA BRABRABRA BRABRA BRABRABRA BRABRABRABRABRA BRABRA BRABRABRABRA BRABRA BRABRABRABRA BRABRA BRABRA BRACANCANCANCAN CAN CANCAN CANCAN CAN CANCAN CANCANCANCANCANCAN CANCAN CANCANCANCAN CANCAN CANCANCAN CANCANCAN CAN CAN CANCANCANCAN CANCANCANCANCAN CANCAN CAN CANCAN CANCAN CANCAN CANCANCANCANCAN CANCANCAN CANCAN CANCANCAN CANCAN CANCAN CAN CANCANCANCANCAN CANCANCAN CANCAN CAN CANCAN CANCAN CANCANCANCAN CAN CANCANCAN CANCANCANCAN CANCAN CANCHE CHECHECHECHECHECHE CHECHECHE CHECHE CHECHE CHECHECHE CHE CHECHECHECHECHECHE CHECHECHE CHE CHECHECHE CHECHE CHECHECHECHECHE CHECHECHECHE CHECHECHECHE CHECHE CHECHECHECHE CHECHECHECHE CHECHE CHECHE CHECHE CHECHECHECHE CHE CHECHECHE CHECHECHE CHE CHECHECHECHECHECHECHECHE CHECHECHE CHECHECHECHE CHECHECHECHE CHE CHECHE CHECHECHE CHECHL CHLCHL CHL CHLCHLCHL CHLCHLCHL CHL CHLCHLCHL CHLCHL CHLCHLCHL CHLCHLCHLCHLCHL CHLCHL CHL CHLCHLCHLCHL CHLCHLCHL CHLCHLCHL CHLCHL CHLCHL CHLCHL CHLCHLCHLCHL CHL CHLCHL CHL CHLCHL CHLCHLCHL CHL CHL CHLCHLCHLCHL CHLCHLCHLCHL CHLCHLCHLCHL CHL CHL CHLCHLCHL CHL CHLCHL CHLCHLCHLCHLCHLCHL CHLCHLCHLCHL CHLCHLCHL CHLCHL CHLCHLCHLCHLCHLCHLCHL
CHNCHNCHNCHN CHNCHNCHNCHNCHNCHN CHNCHNCHNCHN CHN CHNCHNCHNCHNCHN
CHNCHN CHNCHN
CHNCHN CHNCHNCHN CHN
CHNCHNCHN CHNCHN CHNCHNCHNCHNCHNCHNCHNCHN CHNCHN CHNCHN CHNCHN CHNCHN
CHN CHN CHNCHNCHNCHNCHN CHNCHNCHN CHNCHNCHN CHNCHN CHNCHNCHNCHN
CHNCHNCHN CHNCHN CHNCHN CHNCHN CHNCHNCHNCHN CHNCHNCHN CHNCHNCHNCHN CHNCHNCHNCHN CHNCHNCHNCHN CHN CHN
COL COLCOLCOLCOLCOL COLCOLCOLCOLCOL COLCOL COLCOL COLCOLCOL COLCOLCOL COLCOLCOLCOL COLCOLCOL COL COLCOLCOL COL COLCOLCOLCOLCOL COLCOL COL COLCOL COLCOLCOLCOLCOL COL COLCOLCOLCOL COLCOL COLCOL COLCOL COLCOLCOL COLCOLCOLCOLCOL COLCOL COLCOL COL COLCOL COLCOLCOL COL COLCOLCOLCOLCOLCOLCOL COLCOLCOLCOL COL COL COLCOL COLCOLCOL COLCOLCOL COL
DEUDEUDEUDEUDEU
DEUDEUDEUDEUDEUDEUDEU
DEUDEU
DEU
DEUDEUDEUDEU
DEU
DEUDEUDEUDEUDEU DEUDEU
DEUDEU DEU
DEUDEUDEUDEU
DEUDEUDEUDEU
DEU
DEUDEU
DEU
DEUDEU
DEUDEUDEU
DEUDEU DEUDEU DEUDEUDEU DEUDEUDEU
DEUDEU DEUDEUDEUDEUDEUDEUDEUDEUDEU
DEUDEUDEUDEU
DEUDEUDEU
DEUDEUDEU
DEUDEU
DEUDEU
DEUDEUDEU
DEUDEU
DEU DEU DEUDEU DEU
DEUDEUDEU
DEUDEU
DEUDEU
DEU
DNK DNKDNKDNKDNK DNKDNKDNK DNKDNK DNKDNK DNKDNKDNKDNKDNKDNK DNKDNK DNKDNKDNK DNKDNKDNKDNKDNKDNK DNKDNKDNK DNKDNKDNK DNKDNK DNKDNKDNK DNKDNKDNKDNKDNK DNK DNKDNKDNKDNK DNKDNKDNK DNKDNKDNKDNKDNK DNKDNKDNK DNKDNKDNKDNKDNK DNKDNKDNKDNKDNKDNKDNKDNKDNKDNKDNKDNKDNKDNKDNKDNKDNK DNKDNKDNKDNK DNKDNKDNKDNK DNKDNK DNKDNKDNKDNKDNK DNK DNKDZA DZADZA DZADZADZADZA DZA DZADZADZADZA DZADZA DZADZA DZADZADZADZADZADZADZADZA DZADZADZADZA DZADZADZA DZADZA DZADZA DZA DZADZADZADZA DZADZADZA DZADZADZADZA DZADZADZADZADZADZA DZA DZADZADZA DZADZADZA DZADZADZADZADZADZADZA DZA DZADZA DZADZA DZA DZADZADZA DZADZA DZADZA DZADZADZA DZADZA DZADZA DZADZADZADZA DZADZADZA DZADZA DZADZADZADZAEGY EGY EGYEGYEGY EGYEGYEGY EGYEGY EGYEGY EGYEGYEGYEGY EGY EGYEGYEGY EGYEGY EGYEGY EGYEGY EGYEGYEGYEGY EGYEGY EGYEGY EGYEGYEGYEGYEGY EGYEGYEGYEGY EGY EGYEGYEGYEGYEGY EGYEGYEGY EGYEGY EGY EGYEGY EGYEGY EGYEGY EGYEGYEGYEGY EGYEGY EGYEGY EGYEGY EGY EGYEGYEGYEGYEGYEGY EGYEGYEGY EGYEGYEGY EGY EGYEGYEGY EGYEGY EGYEGY EGYEGYEGYEGYEGYEGYEGYEGY ESPESP ESPESP ESPESPESP ESPESP ESPESPESP ESPESP ESPESPESPESPESP ESPESPESP ESPESP ESP ESPESP ESPESPESPESP ESPESPESPESPESP ESP ESPESP ESPESPESP ESPESPESP ESPESPESP ESPESP ESPESPESP ESPESP ESPESP ESPESP ESPESPESPESPESPESPESP ESPESP ESPESP ESPESPESP ESPESP ESPESP ESP ESPESPESP ESPESP ESPESPESP ESPESPESPESP ESPESPESP ESPESP ESP ESPESPESP ESPFINFIN FIN FINFIN FINFINFIN FINFINFINFIN FIN FINFINFIN FINFIN FINFIN FINFIN FIN FINFINFINFIN FIN FIN FINFIN FINFINFINFINFIN FIN FIN FINFINFIN FINFINFIN FINFINFINFINFIN FIN FIN FINFINFIN FINFINFINFIN FINFINFIN FINFIN FINFINFIN FIN FINFIN FINFIN FINFIN FINFIN FINFIN FINFIN FIN FINFINFIN FINFINFINFINFINFINFIN FINFIN FINFIN FINFINFINFINFIN FIN
FRAFRAFRA
FRAFRA
FRAFRAFRAFRAFRA FRA FRAFRA FRAFRAFRAFRAFRAFRAFRA FRAFRA FRAFRAFRAFRA FRAFRA FRA FRAFRAFRAFRAFRAFRAFRA
FRA FRA FRAFRAFRAFRA
FRAFRAFRA FRAFRA FRAFRA FRAFRAFRAFRA FRAFRAFRAFRA
FRAFRAFRA FRAFRA FRAFRAFRAFRAFRA FRAFRA FRAFRA
FRAFRAFRAFRAFRA
FRAFRAFRAFRA FRAFRAFRA
FRAFRAFRAFRAFRAFRAFRAFRAFRAFRA
FRA FRAFRAFRAFRA
FRAFRAGBRGBRGBR GBRGBRGBRGBR GBRGBRGBRGBRGBR GBRGBR GBRGBR GBRGBR
GBRGBRGBRGBRGBRGBRGBR GBRGBRGBRGBRGBRGBRGBRGBR
GBRGBR GBRGBR GBRGBRGBRGBR GBRGBRGBR
GBRGBRGBR GBRGBRGBR
GBRGBR GBRGBR GBRGBRGBRGBRGBR
GBRGBRGBR GBRGBRGBR GBRGBRGBR GBRGBRGBR
GBRGBR GBRGBRGBRGBR GBRGBRGBRGBRGBRGBR GBRGBRGBR GBRGBRGBR GBRGBRGBR GBRGBR GBR GBRGBR GBRGBR GBR
GRCGRC GRC GRCGRC GRCGRC GRCGRCGRC GRCGRC GRC GRCGRC GRCGRC GRCGRC GRCGRCGRCGRC GRC GRCGRCGRCGRC GRCGRC GRCGRCGRC GRCGRCGRCGRCGRCGRC GRCGRC GRCGRCGRC GRCGRC GRCGRCGRCGRCGRC GRCGRC GRCGRC GRC GRCGRCGRC GRC GRCGRCGRCGRCGRCGRC GRCGRCGRCGRC GRC GRCGRCGRCGRCGRC GRC GRCGRC GRCGRCGRCGRC GRCGRC GRCGRCGRCGRC GRC GRCGRCGRCGRCGRCGRCGRCGRC GRCGRCINDIND INDINDINDIND INDIND INDIND INDIND INDIND INDINDIND INDIND IND INDINDIND INDIND IND INDINDIND INDINDINDIND INDIND INDINDINDINDIND IND INDINDINDIND INDINDINDIND INDINDIND INDIND IND INDINDINDIND IND INDIND INDIND INDIND INDIND IND INDINDINDIND IND INDINDINDIND INDINDINDINDIND INDINDINDIND IND INDINDIND INDIND INDIND INDIND INDINDIND IRLIRLIRL IRLIRL IRLIRL IRLIRL IRL IRLIRL IRLIRL IRLIRLIRLIRLIRLIRL IRLIRLIRL IRL IRLIRLIRL IRLIRL IRLIRLIRLIRL IRLIRLIRL IRL IRLIRLIRLIRL IRLIRLIRL IRL IRLIRLIRL IRLIRLIRLIRL IRLIRL IRL IRLIRLIRL IRLIRLIRL IRLIRLIRLIRLIRL IRLIRL IRLIRLIRLIRLIRL IRLIRLIRL IRLIRLIRL IRL IRLIRL IRLIRLIRLIRL IRL IRLIRL IRL IRLIRL IRLIRLIRL IRLIRL IRLIRLIRL
ISRISRISR ISR ISRISR ISRISRISRISRISR ISR ISRISR ISRISRISRISR ISRISRISR ISR ISRISR ISRISR ISRISR ISRISRISRISR ISRISRISR ISR ISRISRISR ISRISR ISRISR ISRISR ISRISRISRISR ISR ISRISRISRISR ISR ISRISR ISRISRISRISRISR ISRISR ISRISRISR ISR ISRISRISR ISRISR ISRISRISRISRISRISR ISRISRISR ISRISRISRISR ISRISRISR ISR ISRISR ISR ISRISRISRISRISRISR ISRITAITA ITA ITAITAITAITA ITAITAITAITAITA ITAITA
ITA ITA ITAITA ITAITA ITAITA ITAITAITAITA
ITAITA
ITA ITAITAITAITA ITA ITAITAITA ITAITAITAITA ITA
ITA ITAITA ITAITA ITAITA ITAITA ITAITA ITAITA ITAITAITA
ITAITA ITAITAITAITA ITAITAITAITA ITAITA ITA
ITA ITAITA ITAITAITA ITAITA ITAITAITA ITAITAITA ITAITA ITAITAITA ITA ITAITAITA ITAITAITAITAITAITA
JPNJPNJPNJPNJPNJPN
JPNJPN
JPN JPNJPN
JPN
JPNJPNJPNJPNJPNJPN
JPNJPN JPN
JPNJPNJPNJPNJPN
JPNJPN
JPNJPNJPNJPN
JPN
JPN JPNJPNJPNJPN JPNJPN JPN
JPNJPN
JPNJPN
JPNJPN
JPNJPNJPN JPN JPNJPN
JPNJPNJPNJPN JPN
JPNJPNJPNJPN
JPN
JPNJPN
JPN JPNJPN
JPNJPNJPN JPNJPN
JPNJPN
JPNJPNJPN
JPNJPN
JPNJPNJPN JPNJPN
JPNJPN JPNJPNJPNJPNJPN
JPNJPN
JPNJPN
JPN JPNJPN
JPN
KORKORKORKORKORKOR KORKORKORKORKOR KOR KORKOR
KOR KORKOR KORKOR KORKOR KORKORKORKOR KORKOR KORKORKOR KORKOR KORKOR KORKORKORKORKORKORKORKOR KOR
KOR KOR KORKOR KORKORKOR KOR KORKORKORKOR
KORKOR KORKORKOR KORKOR KOR KORKORKOR KORKOR KORKORKOR KORKOR
KORKORKOR KORKORKORKOR KORKORKORKOR KORKORKORKORKORKORKOR KOR KORKOR KORKORKOR
KORKORKOR
MEXMEXMEX MEXMEX MEXMEXMEXMEX MEXMEXMEX MEXMEX MEXMEXMEX MEX MEXMEX MEXMEXMEX MEX MEXMEXMEX MEX MEXMEXMEX MEXMEX MEXMEXMEX MEX MEXMEXMEXMEX MEX MEXMEXMEXMEXMEXMEXMEXMEX MEXMEXMEX MEXMEX MEX MEXMEXMEXMEXMEXMEXMEXMEX MEXMEXMEX MEX MEXMEXMEX MEXMEXMEX MEX MEXMEXMEX MEXMEXMEXMEX MEXMEXMEX MEXMEX MEX MEXMEXMEX MEXMEXMEXMEXMEX MEXMEX MEXMEXMYSMYS MYSMYSMYS MYSMYSMYS MYSMYSMYSMYS MYSMYSMYSMYSMYSMYSMYS MYSMYSMYS MYSMYS MYSMYS MYSMYSMYSMYS MYSMYSMYSMYS MYSMYSMYSMYS MYSMYSMYSMYSMYS MYSMYSMYSMYSMYSMYS MYSMYSMYSMYS MYSMYSMYSMYSMYSMYS MYS MYSMYSMYS MYSMYSMYS MYSMYSMYS MYSMYS MYSMYS MYSMYSMYS MYSMYSMYS MYSMYS MYS MYSMYSMYS MYSMYS MYSMYS MYSMYSMYS MYSMYSMYSMYS MYSMYSMYSMYSNOR NOR NORNORNORNORNORNORNOR NORNORNORNOR NORNORNOR NORNORNORNORNOR NORNOR NORNOR NORNORNORNORNORNORNORNOR NORNORNOR NORNOR NORNORNOR NORNORNORNOR NORNORNORNORNORNORNORNORNOR NOR NORNOR NORNORNORNOR NORNOR NORNORNOR NORNOR NORNOR NORNORNOR NOR NORNORNORNOR NORNOR NORNORNORNOR NORNORNORNORNOR NOR NORNOR NORNORNORNOR NORNORNORNORNZL NZLNZLNZL NZLNZL NZLNZLNZL NZLNZL NZLNZL NZLNZL NZL NZLNZL NZLNZL NZLNZL NZLNZLNZL NZL NZLNZLNZL NZLNZL NZLNZL NZL NZLNZLNZLNZL NZLNZL NZLNZLNZLNZL NZL NZLNZLNZLNZL NZLNZLNZL NZL NZLNZLNZLNZL NZLNZL NZLNZLNZLNZL NZLNZL NZLNZL NZLNZLNZLNZLNZL NZLNZL NZLNZL NZLNZL NZLNZLNZL NZLNZLNZLNZL NZLNZLNZL NZL NZLNZLNZL NZLNZLNZL NZLNZLNZL NZLNZLPAK PAKPAKPAKPAKPAKPAKPAK PAK PAKPAKPAK PAKPAK PAKPAKPAK PAKPAK PAKPAK PAKPAKPAKPAKPAK PAKPAK PAK PAKPAK PAK PAKPAKPAK PAKPAKPAKPAKPAK PAK PAKPAK PAK PAKPAK PAK PAKPAKPAKPAK PAK PAK PAKPAKPAK PAKPAK PAKPAK PAK PAKPAKPAKPAKPAKPAKPAKPAKPAKPAKPAK PAK PAKPAKPAK PAKPAKPAK PAKPAK PAKPAKPAK PAKPAK PAKPAKPAKPAK PAKPAKPAKPAKPAK PAKPAK PAKPAK PAKPERPER PERPER PER PERPER PER PERPERPER PERPER PERPERPER PERPERPERPER PERPER PERPER PERPER PERPER PERPERPER PERPER PERPER PER PERPERPERPERPER PERPER PERPERPER PERPER PERPERPER PERPERPER PERPERPERPERPERPER PER PERPERPER PERPER PERPER PERPER PER PERPER PERPER PERPER PER PERPERPER PERPER PERPERPER PERPER PERPER PERPERPER PERPERPERPER PERPERPER PHLPHL PHLPHL PHLPHLPHLPHL PHLPHL PHLPHL PHLPHLPHLPHLPHL PHLPHL PHLPHL PHLPHL PHLPHLPHLPHLPHLPHL PHLPHL PHLPHL PHLPHLPHL PHLPHL PHLPHLPHLPHL PHL PHLPHLPHL PHLPHLPHLPHLPHL PHL PHLPHLPHL PHLPHLPHLPHL PHLPHL PHLPHLPHLPHLPHLPHL PHLPHL PHL PHL PHLPHLPHLPHL PHLPHLPHL PHLPHL PHL PHLPHL PHLPHL PHLPHLPHLPHL PHLPHL PHLPHL PHLPHLPHLPHLPHLPHL PHLPRTPRT PRTPRT PRT PRTPRTPRTPRTPRTPRTPRT PRTPRT PRTPRT PRTPRTPRT PRTPRT PRTPRTPRT PRTPRTPRT PRTPRT PRTPRTPRTPRT PRT PRTPRTPRTPRT PRTPRTPRT PRTPRT PRTPRTPRT PRTPRTPRTPRTPRTPRT PRT PRTPRTPRT PRTPRT PRTPRT PRTPRTPRTPRTPRT PRT PRTPRTPRT PRT PRTPRT PRTPRTPRT PRTPRTPRT PRTPRTPRT PRTPRT PRTPRTPRTPRTPRT PRTPRTPRTPRTPRT PRTPRTPRTPRTPRTPRT PRT RUSRUSRUS RUSRUS RUS RUSRUSRUS RUSRUSRUSRUSRUSRUSRUSRUSRUSRUSRUS RUSRUSRUS RUSRUSRUS RUSRUSRUSRUSRUSRUSRUSRUS RUS RUSRUSRUS RUSRUSRUS RUSRUSRUSRUS RUSRUSRUSRUS RUSRUS RUSRUSRUSRUS RUSRUSRUSRUSRUS RUSRUSRUS RUS RUSRUSRUSRUSRUSRUS RUSRUSRUSRUSRUS RUSRUS RUSRUSRUS RUSRUS RUSRUSRUSRUSRUSRUSRUSRUSRUS RUSRUSRUSRUSRUSRUS RUSRUSRUS SWESWESWESWE SWESWESWE SWESWESWE SWESWE SWESWESWESWE SWESWE SWESWESWE SWE SWESWE SWESWE SWESWESWE SWESWE SWESWE SWESWESWE SWESWESWESWE SWE SWESWESWESWESWE SWE SWESWE SWESWE SWESWE SWE SWESWE SWESWE SWESWESWE SWESWESWE SWESWE SWESWESWE SWE SWESWESWESWE SWESWESWE SWESWE SWESWESWESWE SWESWESWE SWESWESWE SWESWESWE SWESWESWE SWESWESWESWE SWETURTURTUR TURTURTURTURTURTURTUR TURTURTURTURTUR TURTUR TURTURTUR TURTURTURTURTURTURTUR TURTUR TUR TURTURTUR TURTUR TURTUR TURTURTURTURTURTUR TURTUR TURTURTURTURTUR TURTURTURTUR TURTURTUR TURTURTUR TURTUR TUR TUR TURTUR TURTURTURTUR TUR TURTURTUR TURTURTUR TURTUR TURTURTURTUR TURTURTUR TURTUR TUR TURTUR TURTUR TURTURTUR TURTURTURTUR
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VENVENVENVENVEN VEN VENVEN VEN VENVENVEN VEN VENVEN VEN VENVEN VENVENVENVEN VENVENVEN VENVEN VENVENVEN VENVENVEN VENVENVENVENVENVENVEN VENVEN VENVENVENVENVEN VEN VENVENVEN VENVENVEN VENVENVEN VEN VENVEN VENVEN VENVEN VENVEN VENVEN VENVENVEN VENVENVEN VENVENVEN VENVEN VENVEN VENVEN VEN VENVENVENVENVENVEN VENVENVEN VENVENVEN VENVEN VENVENZAF ZAFZAF ZAF ZAFZAF ZAFZAFZAF ZAFZAF ZAFZAF ZAFZAFZAF ZAFZAFZAF ZAFZAFZAFZAF ZAFZAFZAF ZAFZAFZAF ZAFZAF ZAFZAFZAFZAFZAF ZAFZAFZAF ZAFZAFZAF ZAFZAF ZAFZAFZAFZAFZAF ZAFZAF ZAFZAFZAF ZAFZAFZAF ZAF ZAFZAFZAFZAFZAFZAFZAF ZAFZAFZAF ZAFZAF ZAFZAFZAFZAFZAF ZAFZAFZAFZAF ZAF ZAFZAF ZAFZAFZAFZAFZAFZAF ZAF ZAFZAF ZAFZAF ZAF ZAFZAF ZAFZAFZAFZAF
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Specification 5: Alternative weightsExchange rate shock vs. magnitude of exchange rate bias
(d) Alternative weights
Figure 1: MTI: Relationship between an exchange rate shock and the bias of the exchange rate elasticity forθ = 4.
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Table 2: GETI simulated elasticities of country-specific random exchange rate shocks
Baseline GM mistake REER McGuirk d ln approx. Alternative("ideal-REER") ("real-REER") weights
(1) (2) (3) (4) (5)
Exchange rateMean -4 -3.74 -4 -4.001 -3.918Bias 0 .26 0 0.001 .082Std dev. 0 .045 .019 .032 .022MSE 1/2 0 .264 .019 .032 .085
Foreign demandMean 1 .988 1.004 1.004 1.002Bias 0 .012 .004 .004 .002Std dev. 0 .023 .053 .053 .053MSE 1/2 0 .026 .053 .053 .053
Notes: The sample consists of 39 countries and each country receives 100 random exchange rate shocks. The total numberof estimated exchange rate and demand elasticities is 3900 for each of the 5 different specifiations. The top cell labeled"Mean" reports the sample mean of the respective estimates for each type of elasticity. The rows labeled "Bias" give theestimated bias, where est. bias = sample mean - true value. Rows labeled "Std Dev." give the sample standard deviationof the 3900 point estimates. Rows labeled "MSE1/2" give the square root of the estimated mean squared error (MSE),where estimated MSE = (est. bias)2 + (std dev)2.
4.2 General Equilibrium Trade Integration (GETI) counterfactual
In the GETI counterfactual, we allow wages to adjust following an exchange rate shock. In particular,we impose that wages have to adjust in order to keep the current account imbalance constant ininternational currency. To engineer an exchange rate shock in the general equilibrium, we use thesame exchange rate shocks as in the MTI part. When a country receives an idiosyncratic exchangerate shock, the exchange rate does not change for other countries. However, exports change for allcountries because prices and wages adjust after the shock. Table 2 presents the general equilibriumresults using a trade elasticity of 4.
The direction and the magnitude of the underlying biases in the exchange rate elasticities aresimilar to the MTI version. Wrong functional form assumptions and incorrect weighting schemesin the scenarios “Gold medal mistake” and “Alternative weights” bias the exchange rate elasticitytowards zero. The key difference is the increase in the estimation error captured by the MSE. Figures2 and 3 illustrate this change by plotting the bias in the exchange rate and the demand elasticity asa function of the exchange rate shock for the four different scenarios. In the GETI counterfactualan exchange rate shock leads to a much larger estimation bias than in the MTI. The reason whythe average biases are small is that they move in the opposite direction of the exchange rate shock(appreciation leads to upward bias and depreciation leads to downward bias) and cancel each otherout when averaging.
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ARGARG ARGARGARG ARGARG ARGARGARGARG ARGARGARGARGARGARG ARG ARGARG ARGARGARGARGARG ARGARGARG ARGARGARGARGARGARGARG ARGARG ARGARG ARGARG ARGARGARG ARG ARGARGARG ARGARG ARG ARGARGARGARGARGARG ARGARGARG ARG ARGARGARG ARGARGARG ARGARG ARGARG ARGARGARGARG ARG ARGARGARG ARGARG
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MEX MEXMEX MEXMEXMEXMEXMEX MEXMEX MEXMEX MEXMEXMEX MEXMEX MEXMEXMEX MEXMEXMEX MEXMEXMEX MEXMEX MEXMEXMEX MEXMEXMEX MEXMEXMEX MEXMEXMEXMEX MEXMEX MEXMEX MEXMEXMEX MEXMEXMEXMEXMEX MEXMEX MEXMEX MEXMEXMEX MEXMEX MEXMEXMEXMEX MEXMEX MEXMEX MEXMEXMEX MEX MEX
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RUSRUSRUSRUS RUSRUSRUS RUSRUSRUSRUS RUSRUS RUSRUSRUS RUSRUS RUSRUS RUSRUS RUS RUSRUS RUSRUS RUSRUS RUSRUSRUS
RUSRUS RUS RUSRUSRUSRUS RUS RUSRUSRUS RUSRUSRUSRUSRUSRUSRUSRUS RUSRUSRUS RUSRUSRUSRUS RUSRUSRUSRUSRUS RUSRUS RUSRUSRUS RUSRUS RUSRUS RUS RUSRUSRUSRUS RUS RUSRUS RUSRUS RUS RUSRUSRUS
SWESWE SWESWE SWE SWESWESWESWE SWESWESWESWESWESWESWE SWESWESWE SWESWESWESWESWESWESWE SWE SWESWE SWESWESWE SWESWE SWESWESWESWE SWESWE SWESWESWESWE SWESWESWE SWESWESWE SWESWE SWESWESWESWE SWE SWESWESWE SWESWESWE SWESWE SWESWESWE SWESWE SWESWESWE SWESWESWE SWESWE SWE SWESWE SWESWE SWE
TURTURTUR TUR TURTUR TURTUR TURTUR TUR TUR TURTURTURTURTUR TURTURTUR TURTURTUR TUR TURTURTURTUR TURTUR TUR TURTURTURTUR TURTURTURTURTUR TURTUR TURTURTURTUR TURTURTUR TURTURTURTURTUR TURTUR TURTURTURTUR TUR TURTURTURTURTUR TUR TURTUR TURTUR TURTUR TURTUR TURTURTUR TUR
USA USAUSA USAUSAUSA USAUSA USAUSA USAUSAUSA USA USAUSA USAUSAUSAUSAUSAUSA USA USAUSAUSAUSA USAUSAUSAUSAUSA USAUSAUSAUSAUSA USAUSAUSA USAUSAUSAUSA USAUSAUSA USAUSAUSAUSA USAUSA USAUSAUSAUSAUSAUSAUSA USA USAUSAUSAUSA USA USAUSAUSA USAUSAUSA USA USAUSAUSA USAUSA USA USAUSAUSAUSAUSA USAUSAUSA
VENVENVEN
VENVENVEN
VENVENVEN
VENVENVEN
VENVENVENVEN
VENVEN VEN
VENVENVENVEN
VEN
VENVENVENVENVEN VENVEN
VENVENVEN
VEN VENVEN VEN VENVENVENVENVENVEN VENVEN
VENVENVEN VENVEN VENVENVEN VENVENVENVENVENVENVEN
VENVEN VENVEN
VEN
VEN VENVENVENVEN
VENVENVENVENVEN
VENVEN
VEN
VENVEN
VENVENVEN VEN
VENVENVENVEN
VENVEN
ZAF ZAFZAFZAFZAF ZAFZAF ZAFZAF ZAFZAF ZAFZAFZAF
ZAFZAF ZAFZAF ZAFZAFZAFZAF
ZAFZAFZAFZAFZAFZAF
ZAFZAFZAF ZAFZAFZAF ZAFZAF ZAFZAFZAFZAF ZAFZAF ZAFZAFZAF ZAFZAFZAF
ZAF ZAFZAF ZAFZAF ZAFZAFZAFZAF ZAFZAFZAFZAF ZAFZAFZAF ZAFZAFZAFZAF ZAFZAF ZAFZAF ZAF
ZAFZAFZAF ZAF
ZAFZAFZAF ZAFZAF ZAF
-3.8
5-3
.8-3
.75
-3.7
-3.6
5-3
.6Es
timat
ed e
xcha
nge
rate
ela
stic
ity
-.6 -.4 -.2 0 .2Exchange rate shock
Specification 2: Gold medal mistakeExchange rate shock vs. magnitude of exchange rate bias
(a) Gold medal mistake
ARGARG ARGARGARG ARGARG ARGARGARGARG ARGARGARGARGARGARG ARGARGARG ARGARGARGARGARGARGARGARG ARGARGARGARGARGARGARG ARGARG ARGARG ARGARG ARGARGARG ARG ARGARGARG ARGARG ARG ARGARGARGARGARGARG ARGARGARG ARG ARGARGARG ARGARGARG ARGARG ARGARG ARGARGARGARG ARG ARGARGARG ARGARG
AUSAUS
AUS
AUSAUS
AUS
AUS
AUS
AUS
AUS
AUSAUS
AUS
AUS
AUSAUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUSAUS
AUS
AUSAUS
AUS
AUS
AUS
AUS
AUSAUS
AUS
AUS
AUSAUS
AUS
AUS
AUS
AUS
AUSAUS
AUSAUSAUS
AUS
AUS
AUS
AUS
AUS
AUS
AUSAUS
AUS
AUS
AUSAUS
AUS
AUS
AUS
AUS
AUSAUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUSAUSAUS
AUSAUSAUS
AUS
AUS
AUS
AUS
AUS
AUSAUT AUT AUTAUTAUTAUTAUTAUTAUT AUTAUT AUTAUTAUTAUTAUT AUTAUTAUTAUTAUTAUTAUT AUTAUT AUTAUT AUTAUTAUTAUT AUTAUT AUTAUT AUTAUT AUT AUTAUTAUTAUT AUTAUTAUTAUT AUT AUTAUTAUT AUTAUT AUT AUTAUTAUTAUTAUT AUTAUT AUTAUT AUTAUTAUTAUTAUT AUTAUTAUTAUT AUTAUTAUT AUTAUT AUTAUTAUT AUTAUT AUTAUT AUT
BELBELBEL
BELBELBELBEL
BELBEL
BELBELBEL
BELBELBEL
BEL
BELBEL
BELBEL BELBELBEL
BELBELBEL
BELBELBELBEL
BEL
BELBELBEL
BELBEL
BEL
BEL
BEL
BELBEL
BELBEL
BEL
BELBEL BEL
BEL
BELBELBEL
BELBELBELBEL
BEL
BEL BELBEL BEL
BEL BEL
BEL
BELBEL
BELBELBEL
BELBEL BELBELBELBEL
BELBEL
BEL BEL
BELBEL
BELBEL
BELBELBELBELBEL
BRA BRA BRABRABRA BRABRABRA
BRABRABRA BRABRABRA
BRABRABRA BRABRA BRABRA BRABRABRA
BRABRABRABRA BRABRABRA BRA BRABRA
BRABRABRA BRABRABRABRABRABRABRABRABRABRA BRABRA BRA BRA
BRA BRABRABRA
BRA BRA BRABRABRA BRABRABRABRA BRABRA BRABRABRA BRABRA BRA BRABRA BRABRABRABRABRABRA BRABRA BRABRABRACAN
CANCANCAN
CANCANCAN
CAN CANCANCANCANCANCANCANCANCAN
CANCANCAN
CAN
CANCANCANCAN
CANCANCAN CANCANCANCANCAN
CANCANCAN CANCANCANCAN
CANCANCANCANCAN
CANCANCANCANCAN
CANCANCANCANCAN
CANCANCAN
CANCANCAN
CAN CANCANCANCANCAN
CANCAN
CANCANCAN
CAN
CANCANCAN CANCANCAN CANCANCHECHECHECHECHECHECHECHECHE CHECHECHE CHECHE CHE CHECHECHECHECHECHECHE CHECHE CHECHECHE CHECHE CHECHE CHECHECHECHE CHE CHECHECHECHE CHECHECHECHECHECHE CHECHE CHECHECHECHE CHECHE CHECHECHECHECHE CHECHECHECHE CHE CHECHE CHECHE CHECHECHECHE CHECHE CHECHECHE CHECHE CHECHECHE CHECHECHE CHECHE CHECHLCHLCHL CHLCHL CHLCHLCHLCHLCHL CHL CHLCHLCHLCHLCHL CHLCHL CHLCHLCHL CHLCHLCHL CHLCHLCHL CHLCHLCHL CHLCHLCHLCHLCHLCHL CHLCHLCHLCHLCHLCHL CHL
CHL CHLCHLCHL CHLCHLCHL CHLCHL CHLCHL CHLCHL CHLCHLCHLCHL CHLCHLCHLCHLCHL CHL CHLCHLCHL CHLCHL CHL CHLCHLCHL CHLCHL CHLCHLCHLCHLCHLCHL CHL CHLCHL CHLCHLCHLCHLCHNCHN CHNCHNCHNCHNCHNCHN CHNCHN CHNCHN CHN CHN
CHNCHN CHNCHNCHNCHNCHNCHN CHN
CHN
CHNCHN CHNCHN CHNCHN CHNCHN CHN CHNCHNCHN CHNCHNCHN
CHNCHN CHNCHNCHN CHNCHNCHN CHNCHNCHNCHNCHN CHNCHN CHNCHNCHNCHN CHNCHN CHNCHNCHN CHNCHN CHNCHNCHNCHNCHNCHNCHN CHN CHNCHNCHNCHN CHN CHNCHNCHNCHN CHN CHN
CHNCHN CHNCHNCHNCHNCHN CHNCHN COLCOLCOL COLCOL
COLCOLCOLCOL
COL COLCOLCOL
COL COLCOLCOLCOLCOLCOL COL COL
COLCOL COLCOLCOL
COLCOLCOL COLCOLCOL COLCOL
COL
COLCOLCOLCOLCOL
COLCOL
COLCOLCOL COL
COLCOLCOL
COLCOL
COLCOL COLCOL COLCOL COLCOL
COLCOLCOLCOLCOLCOLCOLCOLCOLCOLCOL
COLCOL COLCOL
COLCOL
COLDEUDEU DEUDEUDEUDEU DEUDEUDEUDEUDEUDEUDEUDEUDEUDEUDEUDEU DEU DEUDEU DEU DEUDEU DEU DEUDEUDEU DEUDEU DEU DEUDEU DEUDEUDEU DEUDEU DEUDEUDEU DEUDEUDEUDEUDEU DEUDEUDEU DEUDEUDEU DEUDEUDEU DEU DEUDEU DEUDEU DEUDEUDEUDEU DEU DEUDEU DEU DEUDEUDEU DEUDEU DEUDEUDEUDEUDEU DEUDEUDEU DEUDEU DEUDEUDEU DNKDNK DNK DNKDNKDNKDNK DNKDNKDNK DNK DNKDNKDNKDNK DNK DNKDNK DNKDNK DNKDNKDNKDNKDNK DNKDNK DNKDNK DNK DNKDNK DNKDNKDNK DNK DNKDNKDNKDNK DNKDNK DNKDNKDNK DNKDNK DNKDNKDNKDNK DNKDNK DNK DNKDNKDNK DNKDNKDNKDNKDNKDNK DNKDNK DNKDNKDNK DNKDNKDNKDNKDNK DNKDNK DNKDNK DNKDZADZADZA DZADZADZADZADZADZA DZADZADZA DZADZA DZA DZADZADZA DZADZADZA DZADZA DZADZADZADZA DZA DZA DZADZADZA DZADZA DZADZADZA DZADZADZA DZA DZADZA DZA DZADZADZADZADZA DZA DZADZADZA DZADZADZADZA DZADZA DZADZADZA DZADZADZA DZADZADZADZA DZADZADZA DZADZA DZADZADZA DZAEGY EGYEGYEGYEGY EGY EGYEGYEGY EGYEGYEGYEGYEGY EGYEGYEGYEGY EGYEGYEGY EGYEGY EGYEGY EGY EGY EGYEGY EGYEGY EGYEGY EGY EGYEGYEGYEGYEGYEGY EGYEGYEGYEGY EGYEGYEGYEGY EGYEGY EGYEGYEGYEGY EGYEGY EGYEGY EGYEGY EGYEGY EGYEGY EGYEGY EGYEGYEGY EGYEGYEGY EGYEGY EGYEGY EGYEGYEGY EGYEGYEGYEGYEGY EGY EGYEGYEGY ESPESPESPESP ESPESPESPESP ESPESPESPESP ESPESP ESPESP ESPESPESPESP ESPESP ESP ESPESPESP ESPESPESP ESPESPESPESPESPESP ESPESPESPESPESPESP ESP ESPESPESPESPESPESP ESPESP ESP ESPESPESP ESPESPESP ESPESP ESPESPESPESP ESP ESPESPESPESPESP ESP ESPESPESP ESPESP ESPESPESP ESPESPESPESPESPESPESPESP ESPESPESPESPESPESP ESP FINFINFIN FINFINFINFIN FIN FINFIN FINFIN FINFIN FINFIN FINFIN FINFIN FINFIN FINFINFIN FIN FINFINFIN FINFINFIN FINFIN FINFIN FINFIN FINFINFIN FINFIN FIN FINFIN FINFINFINFIN FINFINFIN FIN FINFINFINFIN FINFINFIN FINFINFINFINFIN FINFINFIN FINFINFINFINFIN FINFINFINFIN FINFINFINFIN FINFINFIN FINFRA FRAFRAFRAFRAFRAFRAFRA
FRAFRA FRAFRAFRAFRAFRA FRAFRA FRAFRA
FRAFRAFRA
FRAFRA
FRA FRAFRAFRAFRAFRA
FRAFRAFRA
FRAFRAFRA FRAFRAFRA
FRAFRA
FRA
FRAFRA FRAFRA
FRAFRA
FRAFRA FRAFRAFRAFRAFRAFRA FRAFRAFRA
FRA FRA FRAFRA FRA
FRAFRAFRAFRAFRA FRA FRAFRAFRAFRAFRA
FRAFRAFRAFRAFRA
FRAFRAFRA
FRA
FRA FRAFRAFRAFRAFRA FRAFRAFRAFRAFRA GBR GBRGBR GBRGBR GBRGBR GBRGBRGBR GBR GBRGBR GBRGBR GBRGBRGBR GBRGBRGBRGBRGBR GBRGBRGBRGBRGBRGBR GBRGBRGBRGBR GBR GBRGBRGBR GBRGBR GBRGBRGBRGBR GBRGBRGBRGBRGBR GBRGBRGBRGBRGBR GBRGBRGBR GBR GBR GBRGBRGBRGBRGBR GBRGBRGBRGBR GBRGBR GBRGBR GBRGBRGBR GBRGBR GBRGBR GBR GBRGBRGBRGBRGBRGBR GBRGBRGBR GBRGRC GRCGRCGRCGRCGRCGRC GRCGRCGRCGRCGRC GRCGRC GRCGRC GRCGRCGRCGRC GRC GRCGRC GRCGRCGRC GRCGRCGRCGRC GRCGRCGRC GRCGRC GRC GRCGRC GRCGRCGRC GRCGRCGRCGRCGRCGRCGRC GRCGRC GRCGRCGRCGRC GRCGRC GRCGRCGRCGRC GRCGRC GRCGRC GRCGRCGRCGRCGRC GRCGRC GRCGRCGRC GRCGRCGRCGRCGRCGRCIND IND INDINDINDINDINDINDIND INDIND INDINDINDIND INDINDINDIND INDINDIND INDINDIND IND INDINDIND INDINDINDIND INDINDIND IND INDINDIND INDINDIND INDINDIND INDIND IND INDIND INDIND INDIND INDINDIND IND INDINDINDIND IND INDIND INDIND INDINDIND INDINDIND INDINDINDIND INDIND INDINDIND INDIND IRL IRLIRLIRLIRL IRLIRLIRL IRLIRL IRLIRL IRLIRLIRL IRLIRLIRLIRL IRLIRL IRL IRLIRLIRL IRL IRLIRL IRLIRL IRLIRLIRL IRLIRL IRL IRLIRL IRLIRL IRLIRL IRLIRLIRLIRL IRL IRL IRLIRLIRLIRL IRLIRL IRL IRLIRL IRL IRLIRL IRLIRL IRLIRL IRL IRLIRL IRLIRLIRL IRLIRL IRLIRL IRLIRL IRLIRL IRL IRLIRL IRLIRLIRL IRLIRLISR ISR ISRISR ISRISRISR ISRISR ISRISRISRISR ISRISRISR ISRISR ISR ISRISRISRISR ISRISRISRISRISR ISR ISRISRISR ISRISRISRISR ISRISRISRISR ISRISRISR ISRISR ISR ISRISRISR ISRISR ISRISRISRISR ISRISRISR ISRISRISR ISRISRISR ISRISR ISR ISR ISRISRISR ISRISR ISRISRISR ISRISRISR ISR ISRISRISR ISR ISRITA
ITAITAITAITAITA ITAITAITA ITAITAITA
ITAITA
ITAITA
ITAITA
ITAITA ITAITAITAITAITA ITA ITAITA
ITAITA
ITAITAITA ITAITA ITAITAITA ITAITAITAITAITAITA ITA
ITAITAITAITA ITA ITAITAITAITA ITA ITAITA ITAITAITA ITAITAITA
ITAITAITAITA ITAITA ITA
ITAITAITA ITAITAITAITA ITAITAITA ITA ITAITAJPNJPN JPN JPNJPNJPN JPNJPN JPNJPN JPNJPNJPNJPN JPN JPNJPNJPN JPN JPNJPN JPN JPNJPNJPN JPN JPNJPN JPNJPNJPNJPNJPNJPNJPNJPN JPN JPNJPNJPNJPNJPNJPN JPNJPN JPNJPNJPN JPNJPN JPNJPN JPNJPNJPN JPNJPN JPNJPN JPN JPNJPNJPN JPNJPNJPN JPNJPNJPN JPN JPNJPN JPNJPNJPNJPNJPNJPNJPNJPN JPNJPNJPNJPNJPNJPN KOR KORKORKORKOR KOR KORKORKOR KORKORKOR KORKOR KORKORKORKORKORKOR KORKOR KORKORKOR KORKORKOR KORKORKOR KORKORKOR KORKORKOR KORKOR KORKORKOR KORKORKORKOR KORKOR KORKOR KORKOR KORKORKORKORKOR KORKOR KOR KORKORKOR KOR KORKOR KOR KORKORKOR KORKORKOR KOR KORKORKOR KORKOR KORKOR KORKOR KORKOR KOR KORKOR
MEX MEXMEX MEXMEXMEXMEXMEX MEXMEX MEXMEX MEXMEX
MEXMEX
MEXMEXMEXMEX
MEXMEXMEX MEXMEXMEX MEX
MEXMEXMEXMEX
MEXMEXMEX MEXMEXMEX MEXMEXMEXMEXMEX
MEXMEXMEX MEXMEXMEX MEXMEXMEXMEXMEX MEXMEX MEX
MEXMEXMEXMEX MEXMEXMEXMEXMEXMEX MEXMEX MEXMEX MEXMEXMEX MEX MEXMYSMYS
MYSMYS
MYS MYSMYS MYS MYSMYSMYS MYSMYS
MYSMYS
MYSMYSMYS MYSMYSMYS
MYSMYS
MYSMYSMYSMYSMYSMYS
MYSMYS MYSMYSMYS MYSMYS
MYSMYSMYS MYSMYS
MYSMYSMYS
MYSMYSMYS
MYSMYSMYS MYSMYSMYSMYSMYSMYSMYSMYS
MYSMYSMYSMYS MYSMYS
MYSMYSMYSMYSMYSMYSMYSMYSMYSMYS
MYSMYSMYSMYS MYSMYS MYS
MYSMYS MYSMYSMYS
MYSMYS MYSMYS MYSNORNORNORNOR NORNOR NOR NORNORNOR NORNORNORNOR NORNOR NOR NORNOR NOR NORNORNOR NOR
NORNORNOR NORNOR
NORNORNOR NORNORNOR NORNORNOR NOR
NORNORNOR NORNORNORNORNORNORNOR NORNORNORNORNOR NOR NORNORNORNORNORNORNORNORNOR NORNORNORNORNORNOR NOR NORNORNORNORNORNOR NORNORNORNOR NOR NORNOR
NZLNZL
NZL
NZLNZLNZLNZL
NZLNZL
NZL
NZLNZLNZLNZLNZL
NZL
NZL
NZLNZLNZLNZL
NZLNZLNZL
NZLNZL
NZLNZLNZLNZL
NZL
NZLNZL
NZLNZL
NZL
NZL
NZLNZL
NZL
NZL
NZLNZL
NZL
NZL
NZL
NZLNZL
NZLNZLNZLNZL
NZLNZL
NZL
NZL
NZL
NZL
NZL
NZLNZL
NZL
NZLNZL
NZLNZL
NZLNZLNZL
NZLNZL
NZLNZL
NZLNZLNZL
NZL
NZLNZL NZL NZLNZLNZL
NZLPAKPAK PAKPAK PAK PAKPAK PAK PAK PAKPAKPAKPAKPAK PAKPAK PAK PAKPAK PAKPAKPAKPAK PAKPAK PAK PAKPAKPAK PAK PAKPAKPAK PAKPAK PAKPAKPAKPAKPAK PAKPAK PAKPAK PAK PAKPAK PAKPAKPAK PAKPAKPAK PAKPAK PAKPAK PAKPAKPAK PAK PAK PAKPAK PAK PAKPAKPAK PAKPAKPAKPAKPAKPAKPAK PAKPAK PAKPAKPAK PAKPAKPAK PAKPERPER PERPERPERPER PERPER PERPERPERPER PERPER PERPER PERPERPER PER PERPERPER PERPER PERPER PERPERPER PERPERPERPER
PERPERPERPERPER PER PERPER PERPER PER PERPERPER PERPER PERPERPERPERPER PER PERPERPER PERPER PER PERPERPER PERPERPERPERPERPERPERPER PERPER PERPERPERPER PERPER PERPHLPHLPHL PHLPHLPHLPHL PHLPHL PHL PHLPHL PHL PHLPHLPHL PHLPHLPHL PHLPHL PHLPHLPHL PHLPHLPHLPHL PHLPHL PHLPHL PHLPHLPHL PHL PHLPHL PHLPHLPHL PHL PHLPHLPHLPHL PHLPHLPHL PHLPHL PHLPHL PHLPHLPHLPHL PHLPHLPHL PHLPHL PHLPHLPHLPHL PHLPHLPHLPHL PHLPHL PHLPHLPHL PHL PHLPHLPHL PHL PRTPRT
PRTPRT
PRTPRTPRTPRTPRTPRT
PRTPRTPRTPRTPRT
PRT PRTPRT PRT
PRTPRTPRTPRT
PRTPRTPRTPRTPRTPRTPRT PRT
PRTPRT PRTPRTPRT PRTPRTPRT PRT
PRTPRTPRT
PRTPRTPRTPRTPRTPRTPRTPRTPRTPRT PRTPRT
PRTPRT
PRTPRTPRT
PRT
PRT
PRTPRT PRT
PRTPRTPRT PRTPRT
PRTPRTPRT
PRTPRT
PRTPRT
PRTPRT RUSRUSRUSRUS RUSRUSRUS RUSRUSRUSRUS RUSRUS RUSRUSRUS RUSRUS RUSRUS RUSRUS RUS RUSRUS RUSRUS RUSRUS RUSRUS
RUSRUSRUSRUS RUSRUSRUSRUS RUS RUSRUSRUS RUSRUSRUSRUSRUSRUSRUSRUS RUSRUSRUS RUSRUSRUSRUS RUSRUSRUSRUSRUS RUSRUS RUSRUSRUS RUSRUS RUSRUS RUS RUSRUSRUSRUS RUS RUSRUS RUSRUS RUS RUSRUSRUS SWESWE SWESWE SWE SWESWESWESWE SWESWESWESWESWESWESWE SWESWESWE SWESWESWESWESWESWESWE SWE SWESWE SWESWESWE SWESWE SWESWESWESWE SWESWE SWESWESWESWE SWESWESWE SWESWESWE SWESWE SWESWESWESWE SWESWESWESWE SWESWESWE SWESWE SWESWESWE SWESWE SWESWESWE SWESWESWE SWESWE SWE SWESWE SWESWE SWE TUR
TURTUR TUR
TURTUR TURTUR TUR
TURTURTUR TURTURTURTURTUR
TURTUR
TURTURTURTUR TUR TUR
TURTURTURTURTUR TUR TURTURTURTUR
TURTURTURTURTUR
TURTUR TURTURTURTUR
TURTURTUR TURTURTURTUR
TUR
TURTUR
TURTURTURTUR TUR TURTURTURTURTUR TUR TUR
TUR TURTUR TUR
TUR TURTURTURTURTUR
TURUSA USAUSA USAUSAUSAUSAUSA USAUSA USAUSAUSA USA USAUSA USAUSAUSAUSAUSAUSA USA USAUSAUSAUSA USAUSAUSAUSAUSA USAUSAUSAUSAUSA USAUSAUSA USAUSAUSAUSA USAUSAUSA USAUSAUSAUSA USAUSA USAUSAUSAUSAUSAUSAUSA USA USAUSAUSAUSA USA USAUSAUSA USAUSAUSA USA USAUSAUSA USAUSA USA USAUSAUSAUSAUSA USAUSAUSAVEN
VENVEN
VENVEN
VEN
VEN
VENVEN
VEN
VENVEN
VENVENVEN
VEN
VEN
VENVEN
VENVEN
VENVEN
VEN
VENVEN
VENVENVEN
VENVEN
VENVEN
VEN
VENVENVEN
VENVEN
VENVENVENVEN
VENVEN
VEN
VEN
VENVEN
VENVEN
VENVEN
VENVENVENVENVEN
VENVENVEN
VEN
VENVEN
VEN
VEN
VENVENVEN
VEN
VEN
VEN
VEN
VENVENVEN
VEN
VEN
VEN
VEN
VEN
VEN
VENVEN
VEN
VEN
VENVENVEN
VEN
VENZAF
ZAFZAFZAFZAF ZAFZAF
ZAFZAFZAFZAF ZAFZAF ZAF ZAFZAF ZAFZAF ZAFZAFZAF
ZAF ZAFZAFZAFZAFZAFZAF ZAF
ZAFZAF ZAFZAFZAF
ZAFZAF ZAFZAFZAF
ZAFZAFZAF
ZAFZAF
ZAFZAF
ZAF ZAF
ZAF
ZAFZAFZAF
ZAF
ZAFZAFZAFZAFZAFZAF
ZAFZAF
ZAFZAFZAF ZAFZAFZAF
ZAF
ZAFZAF ZAF
ZAF ZAFZAFZAFZAF
ZAFZAFZAFZAF
ZAF
ZAF
ZAF
-4.4
-4.2
-4-3
.8Es
timat
ed e
xcha
nge
rate
ela
stic
ity-.5 0 .5
Exchange rate shock
Specification 3: REER a la McGuirkExchange rate shock vs. magnitude of exchange rate bias
(b) McGuirk
ARGARG
ARGARGARGARG
ARGARGARGARGARG
ARGARGARGARGARGARG ARG ARGARG
ARGARGARGARGARG ARGARGARG ARGARGARG
ARGARGARGARGARG
ARG ARGARGARG
ARG ARGARGARG ARGARG
ARGARGARG
ARGARG ARGARGARGARGARGARG ARG
ARGARG ARG ARGARGARG
ARGARGARG ARGARG
ARGARG ARGARGARGARG ARG ARGARGARG
ARGARG
AUSAUS
AUS
AUSAUS
AUS
AUS
AUS
AUS
AUS
AUSAUS
AUS
AUS
AUSAUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUSAUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUSAUS
AUS
AUS
AUSAUS
AUS
AUS
AUS
AUS
AUSAUS
AUSAUSAUS
AUS
AUS
AUS
AUS
AUS
AUS
AUSAUS
AUS
AUS
AUSAUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUSAUSAUS
AUSAUSAUS
AUS
AUS
AUS
AUS
AUS
AUSAUT AUT AUTAUT AUTAUTAUTAUTAUT
AUTAUT
AUTAUTAUTAUTAUTAUTAUTAUT AUTAUTAUTAUT
AUTAUT AUTAUT
AUTAUTAUTAUTAUT
AUT AUTAUT AUTAUTAUT AUTAUTAUTAUT
AUTAUTAUTAUT AUT AUTAUT
AUTAUT
AUT AUT AUTAUTAUTAUTAUTAUT
AUT AUTAUT
AUTAUTAUTAUTAUT
AUTAUTAUTAUT AUTAUTAUT AUTAUT
AUTAUTAUT AUTAUT AUTAUT AUTBELBEL BELBEL BELBELBEL BELBEL BELBELBEL BELBELBELBEL BEL BELBELBEL BELBELBEL BELBELBEL BELBELBELBELBEL BELBELBEL BELBELBEL
BELBEL BELBEL BELBEL BELBEL BEL BELBEL BELBELBEL BELBELBEL BEL BELBEL BEL BEL BELBEL BELBEL BELBEL BEL BELBEL BELBEL BELBELBELBELBELBEL BEL BELBEL BELBEL BELBELBEL BEL BELBELBRA BRA BRABRABRA BRABRA BRABRABRABRA BRABRABRA BRABRABRA BRABRA BRABRA BRABRABRA BRABRABRABRA BRABRABRA BRA BRABRA BRABRABRA BRABRABRABRA BRABRABRABRABRABRA BRABRA BRA BRABRA BRABRA BRABRA BRA BRABRABRA BRABRABRABRA BRABRA BRABRABRA BRABRA BRA BRABRA BRABRABRABRA BRABRA BRABRA BRABRABRACAN
CANCANCAN
CANCAN
CANCAN CANCANCANCANCANCAN
CANCAN
CAN
CAN
CANCAN
CAN
CANCANCAN
CANCAN
CANCAN CANCANCANCANCAN
CAN
CANCANCANCANCAN
CANCAN
CANCANCANCAN
CANCANCAN
CAN
CANCANCAN
CANCANCAN
CANCAN
CAN
CANCAN
CANCAN
CANCANCANCAN
CAN
CAN
CANCANCAN
CAN
CAN
CANCANCANCAN
CAN CANCAN
CANCHECHECHECHECHECHECHECHECHE CHECHECHECHECHE
CHE CHECHECHECHECHECHECHECHECHE CHECHECHE CHE
CHE CHECHECHECHECHECHE CHE CHECHECHECHE CHE CHECHECHECHE
CHECHE
CHE CHECHECHECHE CHECHE CHECHECHECHECHE CHECHECHECHE CHE CHECHE
CHECHE CHECHECHECHE CHECHE CHECHECHE CHECHE CHECHECHE CHECHECHECHECHE CHECHLCHLCHLCHLCHL CHL
CHLCHLCHLCHL CHL CHLCHLCHLCHLCHL CHL
CHL
CHLCHLCHL CHLCHLCHL CHLCHLCHL CHLCHLCHL
CHLCHLCHL CHLCHLCHL CHL CHLCHLCHLCHLCHLCHL
CHLCHLCHLCHL
CHLCHLCHLCHLCHL CHLCHL CHLCHL CHLCHL
CHLCHLCHL CHLCHLCHL
CHLCHL CHLCHL
CHLCHL
CHLCHL CHLCHL
CHLCHLCHL CHLCHLCHLCHLCHL
CHLCHL CHL
CHLCHLCHLCHLCHL
CHNCHN CHN CHNCHN
CHNCHNCHN CHNCHN CHNCHN CHN CHN
CHNCHNCHNCHN
CHNCHNCHNCHN CHN
CHN
CHNCHN CHNCHN
CHNCHN
CHNCHN CHN CHNCHNCHN CHNCHN
CHN
CHNCHN CHNCHNCHN CHNCHNCHN CHNCHNCHNCHNCHN
CHNCHN CHNCHNCHNCHN CHN CHN CHNCHNCHN CHN
CHNCHN
CHNCHNCHNCHN
CHNCHN CHN CHNCHNCHNCHN
CHN CHNCHNCHNCHN CHNCHN
CHNCHN CHNCHNCHNCHN CHNCHN
CHN COLCOLCOL COLCOL COLCOLCOLCOL COL COLCOLCOL COL COLCOLCOLCOL COLCOL COL COLCOLCOL COLCOL COLCOL COLCOL COLCOL COL COLCOLCOL COLCOLCOLCOLCOL COLCOL COLCOL COL COLCOL COLCOL COLCOL COLCOL COLCOL COLCOL COLCOL COLCOLCOLCOLCOLCOL COLCOLCOLCOLCOL COLCOL COLCOL COLCOL COLDEUDEU DEUDEUDEU
DEUDEUDEU DEUDEUDEUDEUDEUDEUDEUDEUDEUDEU
DEU DEUDEU
DEU DEUDEU DEU DEUDEUDEU DEUDEU DEU DEUDEU
DEUDEUDEU DEUDEU
DEUDEUDEU
DEUDEU DEUDEUDEU
DEUDEUDEU DEUDEUDEU
DEUDEUDEU DEU
DEUDEU DEUDEU DEUDEUDEUDEU DEU DEU
DEU DEUDEUDEUDEU DEU
DEUDEUDEUDEUDEUDEU
DEUDEUDEU DEUDEU DEUDEUDEU DNK
DNKDNK
DNKDNKDNKDNK DNKDNKDNK DNK DNKDNK
DNKDNKDNK DNK
DNK DNKDNK DNK DNKDNKDNKDNK
DNKDNK DNKDNK
DNKDNK
DNKDNKDNKDNK
DNKDNK
DNKDNKDNK DNKDNK
DNKDNKDNK DNK
DNK DNKDNKDNKDNK DNKDNK DNK DNKDNKDNK
DNKDNKDNKDNKDNKDNKDNKDNK
DNKDNKDNK
DNKDNKDNKDNKDNK
DNKDNK
DNK
DNK
DNKDZA
DZADZA
DZADZADZADZA
DZADZADZADZADZA
DZA
DZADZA
DZADZA
DZA
DZA
DZA
DZA
DZA
DZA
DZA
DZADZA
DZA
DZADZA
DZA
DZADZA
DZA
DZA
DZA
DZADZA
DZA
DZADZA
DZADZA
DZADZA
DZADZADZA
DZA
DZADZA
DZA
DZA
DZA
DZADZADZADZA
DZADZA
DZA
DZADZADZA
DZADZADZADZA
DZA
DZA
DZA
DZADZA
DZA
DZADZADZA
DZADZAEGY
EGYEGYEGY
EGYEGY
EGYEGY
EGYEGYEGYEGYEGY
EGYEGYEGY EGYEGY EGYEGYEGY
EGYEGY EGYEGY EGY EGY EGY
EGYEGY
EGYEGY
EGY EGY EGYEGY
EGY EGY EGYEGY EGYEGYEGYEGY
EGYEGYEGYEGY EGY
EGYEGY EGYEGY
EGY EGYEGYEGY
EGYEGYEGY EGY
EGYEGY
EGY
EGYEGY EGYEGYEGY EGYEGYEGY EGY
EGYEGYEGY EGYEGYEGY
EGYEGYEGYEGY EGY EGY EGY
EGYEGYESPESP
ESPESPESPESPESPESP
ESPESP
ESPESPESP
ESPESP
ESP
ESPESPESPESP
ESPESPESP ESP
ESPESPESP
ESPESPESP
ESPESPESPESPESPESPESPESPESPESPESP ESP
ESPESPESP
ESPESPESP
ESPESP ESP ESPESPESPESP
ESPESPESP
ESPESP
ESPESPESP ESPESP
ESPESPESPESP
ESPESP
ESPESP ESPESP
ESPESP
ESP
ESPESPESPESPESPESPESP
ESP
ESPESPESPESP ESP
ESP
ESP FINFINFIN FINFINFINFIN FIN FINFIN FINFIN FINFIN FINFIN FINFIN FIN
FIN FINFIN FINFINFIN FIN FINFINFIN FINFINFIN FINFIN FINFIN FINFIN FINFINFIN FINFIN FIN FIN FIN FINFINFINFIN FINFINFIN FIN FINFINFINFIN FINFINFIN
FINFINFINFINFIN FINFINFIN FIN FINFINFINFIN FINFINFINFIN FINFINFINFIN FINFINFIN FIN
FRAFRAFRA
FRAFRAFRA
FRA
FRA
FRA
FRAFRAFRA FRA
FRAFRA
FRAFRA
FRAFRA
FRA
FRAFRA
FRA
FRA
FRAFRA
FRAFRAFRA
FRA
FRA
FRAFRA
FRAFRA
FRAFRAFRA
FRAFRA
FRA
FRA
FRA
FRAFRA
FRA
FRA
FRA
FRAFRA
FRAFRAFRA
FRAFRAFRA FRA
FRAFRAFRA
FRA FRAFRA FRA
FRA
FRAFRAFRA FRAFRA
FRAFRAFRAFRA
FRA
FRAFRAFRA
FRA
FRA
FRAFRA
FRA
FRA
FRA FRAFRAFRAFRA FRA
FRAFRAFRAFRA
FRA GBR GBRGBR
GBRGBR
GBRGBR GBR
GBRGBR GBRGBR
GBRGBRGBR GBRGBR
GBRGBRGBRGBR
GBRGBRGBRGBR GBR
GBRGBRGBRGBRGBRGBRGBR
GBR GBR GBRGBR GBR
GBRGBR
GBRGBRGBRGBRGBRGBRGBRGBR
GBRGBRGBRGBRGBRGBRGBR
GBR GBRGBR GBRGBRGBRGBR
GBRGBRGBR
GBRGBRGBR
GBR GBRGBR
GBR GBRGBRGBR
GBRGBR
GBRGBR GBRGBRGBRGBRGBRGBR GBR
GBRGBRGBRGRC
GRCGRCGRCGRCGRC
GRC
GRCGRC GRCGRCGRCGRC
GRCGRC
GRC
GRCGRCGRCGRCGRC
GRCGRC
GRCGRCGRC GRCGRCGRCGRC
GRCGRCGRC
GRCGRC
GRCGRC
GRCGRCGRCGRC GRC
GRCGRCGRCGRCGRC
GRCGRCGRC
GRCGRC GRC
GRCGRCGRC
GRCGRCGRCGRC
GRCGRC GRC
GRC
GRCGRCGRCGRCGRC
GRCGRC
GRCGRC
GRC
GRCGRCGRCGRCGRCGRCIND IND INDINDINDINDINDINDIND
INDIND INDINDINDIND INDINDINDIND INDINDIND
INDINDIND IND
INDINDIND
INDIND INDINDINDIND
INDIND IND
INDINDINDIND
IND INDINDIND INDIND IND INDIND
INDIND IND
IND INDINDIND INDINDINDINDIND IND IND
INDIND
INDINDINDIND INDINDIND
INDINDINDIND INDIND INDINDIND
INDIND IRL IRLIRLIRLIRL IRLIRLIRL IRLIRL IRLIRL IRLIRLIRL IRLIRLIRLIRL IRLIRL IRL IRLIRLIRL IRL IRLIRL IRLIRL IRLIRLIRL IRLIRL IRL IRLIRL IRLIRL IRLIRL IRLIRLIRLIRL IRL IRL IRLIRLIRLIRL IRLIRL IRL IRLIRL IRL IRLIRL IRLIRL IRLIRL IRL IRLIRL IRLIRLIRL IRLIRL IRLIRL IRLIRL IRLIRL IRL IRL
IRLIRLIRLIRL
IRLIRLISR ISR ISRISR ISRISRISR
ISRISRISR
ISRISRISRISRISR
ISRISRISR ISR ISRISRISRISR ISRISRISRISR
ISRISR ISRISRISR ISRISRISRISR ISRISRISR
ISRISRISRISR ISR
ISR ISRISR
ISR ISR ISRISRISR
ISRISRISR
ISRISR
ISR
ISRISRISRISRISRISRISR
ISR ISR ISRISRISRISR ISR
ISRISRISR
ISRISRISRISR ISR ISR
ISRISR ISRISRITA
ITA
ITAITAITA
ITA
ITAITAITA
ITAITAITA
ITA
ITA
ITA
ITA
ITA
ITA
ITAITAITA
ITAITAITA
ITA
ITAITA
ITA
ITA
ITA
ITAITAITA
ITAITA ITA
ITAITAITA
ITAITA
ITAITAITA
ITA
ITA
ITAITAITA
ITA ITA ITAITA
ITAITA
ITAITA
ITAITAITA
ITAITA ITA
ITA
ITAITAITA
ITAITA ITA
ITAITA
ITA ITAITA ITAITA
ITAITAITA
ITAITA
ITAJPNJPNJPN JPNJPNJPN JPNJPN JPN
JPNJPNJPN JPN
JPNJPN JPNJPN
JPNJPN JPN
JPNJPN JPNJPN
JPN JPNJPN
JPNJPNJPNJPNJPNJPN JPNJPNJPN JPN JPNJPNJPNJPNJPNJPN JPNJPN JPNJPNJPN
JPNJPN JPNJPN JPNJPNJPN JPN
JPNJPNJPN JPN JPNJPNJPN JPN
JPNJPNJPN
JPNJPN JPN JPNJPNJPNJPNJPNJPNJPNJPNJPNJPN
JPN JPNJPNJPNJPNJPN KOR KORKORKORKOR KOR KORKORKOR KORKORKOR KORKOR
KORKORKORKORKORKOR KORKOR KORKORKOR KORKORKORKORKORKOR KOR KORKOR KORKORKOR KOR
KORKORKORKOR KOR KOR KOR
KOR KORKORKORKOR KORKOR KORKORKORKORKOR KOR
KOR KOR KORKORKOR KOR KORKOR
KOR KORKORKORKORKORKOR KOR KOR
KORKORKOR
KOR KORKOR
KORKOR KORKOR KOR KORKOR
MEXMEXMEX
MEXMEXMEXMEXMEX MEXMEX
MEX
MEXMEXMEX
MEX
MEX
MEXMEX
MEXMEX
MEXMEXMEX
MEXMEXMEX
MEX
MEX
MEXMEXMEX
MEXMEXMEX MEXMEXMEX
MEXMEXMEX
MEXMEX
MEX
MEXMEX MEXMEXMEX MEXMEXMEXMEXMEX MEXMEX
MEX
MEX
MEXMEXMEX
MEXMEX MEXMEXMEX
MEXMEXMEX MEXMEX MEX
MEXMEX
MEXMEX
MYSMYS
MYSMYS
MYSMYSMYS
MYS MYSMYS
MYSMYSMYS
MYSMYS
MYSMYS
MYSMYSMYSMYS
MYS
MYS
MYSMYSMYSMYSMYSMYS
MYSMYS
MYSMYS
MYSMYSMYS
MYSMYSMYS
MYS
MYS
MYSMYS
MYS
MYS
MYSMYS
MYSMYSMYS
MYSMYSMYSMYS
MYS
MYSMYSMYSMYS
MYSMYSMYS MYSMYS
MYSMYS MYSMYSMYSMYSMYSMYSMYSMYS
MYS
MYSMYSMYS MYSMYS MYS
MYSMYS
MYS MYSMYS
MYS
MYSMYSMYS
MYSNORNOR NORNOR
NOR
NORNOR NOR
NORNOR
NORNORNORNOR
NOR
NOR
NORNOR
NORNOR
NORNORNOR
NOR
NOR
NOR
NOR
NORNOR
NOR
NORNORNOR
NORNORNORNOR
NOR
NOR
NOR
NOR
NOR
NORNORNOR NORNORNOR NOR
NORNOR
NORNORNOR
NOR
NORNORNORNORNORNORNORNORNOR
NORNORNORNORNORNOR NOR NORNORNORNORNORNOR
NORNOR
NORNORNOR
NORNOR
NZL
NZL
NZL
NZL
NZLNZLNZL
NZLNZL
NZL
NZLNZLNZL
NZLNZL
NZL
NZL
NZLNZL
NZLNZL
NZL
NZLNZL
NZL
NZL
NZL
NZLNZLNZL
NZL
NZLNZL
NZL
NZL
NZL
NZL
NZL
NZL
NZL
NZL
NZLNZL
NZL
NZL
NZL
NZLNZL
NZLNZL
NZLNZL
NZLNZL
NZL
NZL
NZL
NZL
NZL
NZL
NZL
NZL
NZLNZL
NZLNZL
NZLNZL
NZL
NZLNZL
NZLNZL
NZLNZLNZL
NZL
NZLNZLNZL
NZLNZLNZL
NZL
PAKPAK PAKPAK PAK PAK
PAKPAK PAK PAKPAKPAKPAK
PAKPAKPAK PAK PAK
PAK PAKPAKPAKPAK PAKPAK PAKPAKPAK
PAKPAK PAKPAKPAK
PAKPAK
PAKPAK PAKPAKPAK PAK
PAK PAKPAK
PAK PAKPAK
PAKPAKPAK PAKPAK
PAK
PAKPAK
PAKPAK PAKPAKPAK PAK PAK PAKPAK PAK PAKPAKPAK
PAKPAKPAKPAKPAKPAKPAK
PAKPAK
PAKPAKPAK PAKPAKPAK PAKPERPER PER PERPERPER PERPER PERPERPERPER PERPER PERPER PERPERPER PER PERPERPER PERPER PERPER PERPERPER PERPERPERPERPER PERPER PERPER PER PERPER PERPER PER PERPERPER PERPER PERPERPERPERPER PER PERPERPER PERPER PER PERPERPER PERPERPER PER PERPERPERPER PERPER PERPERPERPER PERPER PERPHLPHLPHL PHLPHLPHLPHL
PHLPHL PHL PHLPHL PHL PHLPHLPHL PHLPHLPHL PHLPHL
PHLPHLPHL PHLPHLPHLPHL PHLPHL PHLPHL PHLPHLPHL PHL PHLPHLPHLPHLPHL PHL PHL
PHLPHLPHLPHLPHLPHL PHLPHL PHLPHL PHLPHLPHLPHL PHLPHLPHL PHLPHL PHLPHLPHLPHL
PHLPHLPHLPHL PHLPHL PHLPHL
PHLPHL PHLPHLPHL PHL PRTPRTPRT PRTPRTPRTPRT PRTPRTPRTPRTPRTPRT PRTPRTPRT PRT PRT PRTPRT PRTPRTPRT PRTPRTPRT PRTPRTPRTPRT PRTPRT PRT PRTPRTPRT PRTPRTPRT PRTPRT PRTPRTPRTPRTPRTPRTPRTPRTPRT PRTPRTPRT PRTPRTPRT PRTPRTPRTPRT PRTPRT PRTPRT PRTPRT PRTPRT PRTPRTPRT PRTPRT PRTPRTPRT PRT PRTPRT RUSRUSRUSRUS RUSRUSRUS
RUSRUSRUSRUS RUSRUS RUSRUSRUS RUSRUSRUSRUS RUS
RUS RUS RUSRUS RUSRUS RUSRUS RUSRUS
RUSRUSRUS RUS RUSRUSRUSRUS RUS RUSRUSRUS RUSRUSRUSRUSRUSRUSRUSRUS RUSRUSRUS RUSRUSRUSRUS RUS
RUSRUSRUSRUSRUSRUS RUSRUSRUS RUSRUS RUSRUS RUS RUSRUSRUS
RUS RUSRUSRUS RUSRUS
RUS RUSRUSRUSSWE
SWE SWESWESWE SWE
SWESWESWE SWESWESWESWESWESWESWE
SWESWESWE SWESWESWESWESWESWESWE SWE SWESWE SWESWESWE SWESWE SWESWESWE
SWESWESWE SWESWESWESWE
SWESWESWE SWESWESWE SWESWE
SWESWESWESWE SWE SWESWESWE SWESWESWESWE
SWESWESWESWE
SWESWESWESWESWE SWESWESWE
SWESWE
SWE SWESWE
SWESWE
SWETUR
TURTUR
TURTURTUR
TURTUR
TUR
TUR
TUR TURTURTURTUR
TURTUR
TURTUR
TUR
TURTURTUR
TUR TUR
TURTURTUR
TURTUR
TURTUR
TURTURTUR
TUR
TURTURTURTUR
TURTUR TURTURTUR
TUR
TURTURTURTURTUR
TURTUR
TUR
TURTUR
TURTURTURTUR
TUR TURTURTURTURTUR
TURTUR
TURTUR
TURTUR
TURTURTUR
TURTURTUR
TURUSA
USAUSA
USAUSA
USA USAUSAUSA
USA USAUSAUSAUSA
USAUSA USAUSA
USAUSAUSAUSA USAUSAUSAUSAUSA USAUSAUSAUSAUSA
USAUSAUSAUSAUSAUSA
USAUSAUSAUSAUSA
USAUSAUSAUSA USAUSAUSAUSA
USAUSA
USAUSAUSAUSAUSAUSAUSA USA USAUSAUSAUSA USA
USAUSAUSA
USAUSAUSA USA USAUSAUSA USA
USA USA USAUSAUSAUSAUSA USAUSAUSAVEN
VENVEN
VENVEN
VEN
VEN
VENVEN
VEN
VENVEN
VENVENVEN
VEN
VEN
VENVEN
VENVEN
VENVEN
VEN
VENVEN
VENVENVEN
VENVEN
VENVEN
VEN
VENVENVEN
VENVENVENVEN
VENVEN
VENVEN
VEN
VEN
VENVEN
VENVEN
VENVEN
VENVENVENVENVEN
VENVENVEN
VEN
VENVEN
VEN
VEN
VENVENVEN
VEN
VEN
VEN
VENVENVEN
VEN
VEN
VEN
VEN
VEN
VEN
VEN
VENVEN
VEN
VEN
VENVENVEN
VEN
VEN
ZAF
ZAFZAFZAF
ZAFZAFZAF
ZAFZAF ZAFZAF ZAF
ZAFZAF
ZAFZAF
ZAF
ZAFZAFZAF
ZAFZAF ZAFZAF
ZAFZAFZAF
ZAFZAF
ZAFZAF
ZAF
ZAFZAF
ZAF
ZAFZAFZAFZAF
ZAF
ZAFZAF
ZAFZAF
ZAF
ZAF
ZAFZAF
ZAF
ZAFZAF
ZAF
ZAF
ZAFZAFZAF
ZAF
ZAFZAF
ZAF
ZAF
ZAFZAFZAFZAF
ZAFZAF
ZAF
ZAFZAF ZAF
ZAFZAF
ZAFZAFZAF
ZAFZAFZAFZAF
ZAF
ZAF
ZAF
-4.4
-4.2
-4-3
.8Es
timat
ed e
xcha
nge
rate
ela
stic
ity
-.6 -.4 -.2 0 .2Exchange rate shock
Specification 4: dln approximationExchange rate shock vs. magnitude of exchange rate bias
(c) Log-approximation
ARGARG ARGARGARG ARGARG ARGARGARGARG ARGARGARGARGARGARG ARGARGARG ARGARGARGARGARGARGARGARG ARGARGARGARGARGARGARG ARGARG ARGARG ARGARG ARGARGARG ARG ARGARGARG ARGARG ARG ARGARGARGARGARGARG ARGARGARG ARG ARGARGARG ARGARGARG ARGARG ARGARG ARGARGARGARG ARG ARGARGARG ARGARG
AUSAUS
AUS
AUSAUS
AUS
AUS
AUS
AUS
AUS
AUSAUS
AUS
AUS
AUSAUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUSAUS
AUS
AUSAUS
AUS
AUS
AUS
AUS
AUSAUS
AUS
AUS
AUSAUS
AUS
AUS
AUS
AUS
AUSAUS
AUSAUSAUS
AUS
AUS
AUS
AUS
AUS
AUS
AUSAUS
AUS
AUS
AUSAUSAUS
AUS
AUS
AUS
AUSAUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUSAUSAUS
AUSAUSAUS
AUS
AUS
AUS
AUS
AUS
AUSAUT AUT AUTAUTAUTAUTAUTAUTAUT AUTAUT AUTAUTAUTAUTAUT AUTAUTAUTAUTAUTAUTAUT AUTAUT AUTAUT AUTAUTAUTAUT AUTAUT AUTAUT AUTAUT AUT AUTAUTAUTAUT AUTAUTAUTAUT AUT AUTAUTAUT AUTAUT AUT AUTAUTAUTAUTAUT AUTAUT AUTAUT AUTAUTAUTAUTAUT AUTAUTAUTAUT AUTAUTAUT AUTAUT AUTAUTAUT AUTAUT AUTAUT AUTBELBEL
BELBEL
BELBELBELBEL
BELBEL
BELBELBELBEL
BEL
BEL
BELBEL
BELBEL BELBELBELBELBEL
BELBELBELBEL
BELBEL
BELBELBEL BEL
BELBEL
BEL
BELBEL
BELBEL
BELBEL
BELBEL BEL
BEL
BELBELBELBELBEL
BELBELBEL
BEL BELBEL BEL
BEL BELBEL
BELBEL
BELBELBEL
BELBEL BELBELBELBELBELBEL
BEL BELBEL
BELBEL
BELBELBEL
BELBELBELBRA BRA BRABRABRA BRABRA BRABRABRABRA BRABRA
BRABRABRABRA BRABRA BRABRA BRABRABRA BRABRABRABRA BRABRABRA BRA BRABRA BRABRABRA BRABRABRABRA BRABRABRABRABRABRA BRABRA BRA BRABRA BRABRA BRABRA BRA BRABRABRA BRABRABRABRA BRABRA BRABRABRA BRABRA BRA BRABRA BRABRABRABRA BRABRA BRABRA BRABRABRACANCAN CANCAN
CANCAN CAN CAN CANCANCANCANCANCANCANCANCAN
CANCANCAN
CANCANCANCAN CAN
CAN CANCAN CANCANCANCANCANCANCANCAN CANCANCANCAN
CANCANCANCANCAN
CANCANCANCANCANCANCAN CANCANCAN
CANCANCAN
CANCANCAN CAN CANCANCANCAN CAN
CANCANCANCAN
CAN
CANCANCANCAN CAN
CANCAN CANCANCHECHECHECHECHECHECHECHECHE CHECHECHE CHECHE CHE CHECHECHECHECHECHECHE CHECHE CHECHECHE CHECHE CHECHE CHECHECHECHE CHE CHECHECHECHE CHECHECHECHECHECHE CHECHE CHECHECHECHE CHECHE CHECHECHECHECHE CHECHECHECHE CHE CHECHE CHECHE CHECHECHECHE CHECHE CHECHECHE CHECHE CHECHECHE CHECHECHE CHECHE CHECHLCHLCHLCHLCHL CHLCHLCHLCHLCHL CHL CHLCHLCHLCHLCHL CHL
CHLCHLCHLCHL CHLCHLCHL CHLCHLCHL CHL
CHLCHLCHLCHLCHLCHLCHLCHL CHLCHLCHLCHLCHLCHL CHL
CHL CHLCHLCHL CHLCHLCHLCHLCHL CHLCHL CHLCHL CHLCHL
CHLCHL CHLCHLCHLCHLCHL
CHL CHLCHLCHL CHL
CHLCHL CHLCHLCHL CHLCHL CHLCHLCHLCHLCHLCHL
CHL CHLCHL
CHLCHLCHLCHLCHNCHN CHNCHNCHN CHNCHNCHN CHNCHN CHNCHN CHN CHNCHNCHN CHNCHNCHNCHN
CHNCHN CHN
CHN
CHNCHN CHNCHN CHNCHN CHNCHN CHN CHNCHNCHN CHNCHNCHN
CHNCHN CHNCHNCHN CHNCHNCHN CHNCHNCHNCHNCHN CHNCHN CHNCHNCHNCHN CHNCHN CHNCHNCHN CHNCHN CHNCHNCHNCHN CHNCHNCHN CHN CHNCHNCHNCHN CHN CHNCHNCHNCHN CHN CHNCHNCHN CHNCHNCHNCHNCHN CHNCHNCOLCOLCOL COLCOL COLCOLCOLCOL COL COLCOLCOL COL COLCOLCOLCOLCOLCOL COL COLCOLCOL COLCOL COLCOL COLCOL COLCOLCOL COLCOL
COLCOLCOLCOLCOLCOL COLCOL COLCOLCOL COLCOL COLCOL COLCOLCOLCOL COLCOL COLCOL COLCOL COLCOLCOLCOLCOLCOL COLCOLCOLCOLCOL COLCOL COLCOL COLCOL COLDEUDEU DEUDEUDEUDEU DEUDEUDEUDEUDEUDEUDEUDEUDEUDEUDEUDEU DEU DEUDEU DEU DEUDEU DEU DEUDEUDEU DEUDEU DEU DEUDEU DEUDEUDEU DEUDEU DEUDEUDEU DEUDEUDEUDEUDEU DEUDEUDEU DEUDEUDEU DEUDEUDEU DEU DEUDEU DEUDEU DEUDEUDEUDEU DEU DEUDEU DEU DEUDEUDEU DEUDEU DEUDEUDEUDEUDEU DEUDEUDEU DEUDEU DEUDEUDEU
DNKDNK DNK DNKDNKDNKDNK DNKDNKDNK DNK DNKDNKDNKDNK DNK DNKDNK DNKDNK DNKDNKDNKDNKDNK DNKDNK DNKDNK DNK DNKDNK DNKDNKDNK DNK DNKDNKDNKDNK DNKDNK DNKDNKDNK DNKDNK DNKDNKDNKDNK DNKDNK DNK DNKDNKDNK DNKDNKDNKDNKDNKDNK DNKDNK DNKDNKDNK DNKDNKDNKDNKDNK DNKDNK DNKDNK DNKDZADZADZA DZADZADZADZADZADZA DZADZADZA DZADZA DZA DZADZADZA DZADZADZA DZADZA DZADZADZADZA DZA DZA DZADZADZA DZADZA DZADZADZA DZADZADZA DZA DZADZA DZA DZADZADZADZADZA DZA DZADZADZA DZADZADZADZA DZADZA DZADZADZA DZADZADZA DZADZADZADZA DZADZADZA DZADZA DZADZADZA DZAEGY EGYEGYEGYEGY EGY EGYEGYEGY EGYEGYEGYEGYEGY EGYEGYEGYEGY EGYEGYEGY EGYEGY EGYEGY EGY EGY EGYEGY EGYEGY EGYEGY EGY EGYEGYEGYEGYEGYEGY EGYEGYEGYEGY EGYEGYEGYEGY EGYEGY EGYEGYEGYEGY EGYEGY EGYEGY EGYEGY EGYEGY EGYEGY EGYEGY EGYEGYEGY EGYEGYEGY EGYEGY EGYEGY EGYEGYEGY EGYEGYEGYEGYEGY EGY EGYEGYEGY ESPESPESPESP ESPESPESPESP ESPESPESPESP ESPESP ESPESP ESPESPESPESP ESPESP ESP ESPESPESP ESPESPESP ESPESPESPESPESPESP ESPESPESPESPESPESP ESP ESPESPESPESPESPESP ESPESP ESP ESPESPESP ESPESPESP ESPESP ESPESPESPESP ESP ESPESPESPESPESP ESP ESPESPESP ESPESP ESPESPESP ESPESPESPESPESPESPESPESP ESPESPESPESPESPESP ESP FINFINFIN FINFINFINFIN FIN FINFIN FINFIN FINFIN FINFIN FINFIN FINFIN FINFIN FINFINFIN FIN FINFINFIN FINFINFIN FINFIN FINFIN FINFIN FINFINFIN FINFIN FIN FINFIN FINFINFINFIN FINFINFIN FIN FINFINFINFIN FINFINFIN FINFINFINFINFIN FINFINFIN FINFINFINFINFIN FINFINFINFIN FINFINFINFIN FINFINFIN FINFRA FRAFRAFRAFRAFRAFRAFRA
FRAFRA FRAFRAFRAFRAFRA FRAFRA FRAFRA
FRAFRAFRA
FRAFRA
FRA FRAFRAFRAFRA FRAFRA
FRAFRAFRA FRAFRA FRAFRAFRA FRA
FRAFRA
FRAFRA FRAFRA FRA
FRA FRAFRA FRAFRAFRAFRAFRAFRA FRAFRAFRAFRA FRA FRAFRA FRA
FRAFRAFRAFRAFRA FRA FRAFRAFRAFRAFRA
FRAFRAFRAFRAFRA
FRAFRAFRA
FRA
FRA FRAFRAFRAFRAFRA FRAFRAFRAFRA FRAGBR GBRGBR GBRGBR GBRGBR GBRGBRGBR GBR GBRGBR GBRGBR GBRGBRGBR GBRGBRGBRGBRGBR GBRGBRGBRGBRGBRGBR GBRGBRGBRGBR GBR GBRGBRGBR GBRGBR GBRGBRGBRGBR GBRGBRGBRGBRGBR GBRGBRGBRGBRGBR GBRGBRGBR GBR GBR GBRGBRGBRGBRGBR GBRGBRGBRGBR GBRGBR GBRGBR GBRGBRGBR GBRGBR GBRGBR GBR GBRGBRGBRGBRGBRGBR GBRGBRGBR GBRGRC GRCGRCGRCGRCGRCGRC GRCGRCGRCGRCGRC GRCGRC GRCGRC GRCGRCGRCGRC GRC GRCGRC GRCGRCGRC GRCGRCGRCGRC GRCGRCGRC GRCGRC GRC GRCGRC GRCGRCGRC GRCGRCGRCGRCGRCGRCGRC GRCGRC GRCGRCGRCGRC GRCGRC GRCGRCGRCGRC GRCGRC GRCGRC GRCGRCGRCGRCGRC GRCGRC GRCGRCGRC GRCGRCGRCGRCGRCGRCIND IND INDINDINDINDINDINDIND INDIND INDINDINDIND INDINDINDIND INDINDIND INDINDIND IND INDINDIND INDINDINDIND INDINDIND IND INDINDIND INDINDIND INDINDIND INDIND IND INDIND INDIND INDIND INDINDIND IND INDINDINDIND IND INDIND INDIND INDINDIND INDINDIND INDINDINDIND INDIND INDINDIND INDIND IRL IRLIRLIRLIRL IRLIRLIRL IRLIRL IRLIRL IRLIRLIRL IRLIRLIRLIRL IRLIRL IRL IRLIRLIRL IRL IRLIRL IRLIRL IRLIRLIRL IRLIRL IRL IRLIRL IRLIRL IRLIRL IRLIRLIRLIRL IRL IRL IRLIRLIRLIRL IRLIRL IRL IRLIRL IRL IRLIRL IRLIRL IRLIRL IRL IRLIRL IRLIRLIRL IRLIRL IRLIRL IRLIRL IRLIRL IRL IRLIRL IRLIRLIRL IRLIRLISR ISR ISRISR ISRISRISR ISRISR ISRISRISRISR ISRISRISR ISRISR ISR ISRISRISRISR ISRISRISRISRISR ISR ISRISRISR ISRISRISRISR ISRISRISRISR ISRISRISR ISRISR ISR ISRISRISR ISRISR ISRISRISRISR ISRISRISR ISRISRISR ISRISRISR ISRISR ISR ISR ISRISRISR ISRISR ISRISRISR ISRISRISR ISR ISRISRISR ISR ISR
ITAITA ITAITAITAITA ITAITAITA ITAITAITAITA ITAITA ITA
ITAITA
ITAITA ITAITAITAITAITA ITA ITAITA
ITAITAITAITAITA ITAITA ITAITAITA ITAITAITA ITAITAITA ITAITA ITAITAITA ITA ITAITAITAITA ITA ITAITA ITAITAITA ITAITAITAITA
ITAITAITA ITAITA ITAITAITA ITA ITAITAITAITA ITAITAITA ITA ITAITA
JPNJPN JPN JPNJPNJPN JPNJPN JPNJPN JPNJPNJPNJPN JPN JPNJPNJPN JPN JPNJPN JPN JPNJPNJPN JPN JPNJPN JPNJPNJPNJPNJPNJPNJPNJPN JPN JPNJPNJPNJPNJPNJPN JPNJPN JPNJPNJPN JPNJPN JPNJPN JPNJPNJPN JPNJPN JPNJPN JPN JPNJPNJPN JPNJPNJPN JPNJPNJPN JPN JPNJPN JPNJPNJPNJPNJPNJPNJPNJPN JPNJPNJPNJPNJPNJPN KOR KORKORKORKOR KOR KORKORKOR KORKORKOR KORKOR KORKORKORKORKORKOR KORKOR KORKORKOR KORKORKOR KORKORKOR KORKORKOR KORKORKOR KORKOR KORKORKOR KORKORKORKOR KORKOR KORKOR KORKOR KORKORKORKORKOR KORKOR KOR KORKORKOR KOR KORKOR KOR KORKORKOR KORKORKOR KOR KORKORKOR KORKOR KORKOR KORKOR KORKOR KOR KORKORMEX MEXMEX MEXMEXMEXMEXMEX MEXMEX MEX
MEX MEXMEXMEX
MEXMEX
MEXMEXMEXMEXMEXMEX MEXMEXMEX MEX
MEXMEXMEXMEX MEXMEXMEX MEXMEXMEX MEXMEXMEXMEX MEX
MEXMEXMEX MEXMEXMEX MEXMEXMEXMEXMEX MEXMEX MEX
MEXMEXMEXMEX MEXMEXMEXMEXMEXMEX MEXMEX MEXMEX MEXMEXMEX MEX MEXMYS MYS
MYSMYSMYS MYSMYS MYS MYSMYS
MYS MYSMYSMYS MYSMYSMYSMYS MYSMYSMYS MYS
MYSMYSMYSMYSMYSMYSMYS MYSMYS MYSMYS
MYS MYSMYS MYSMYSMYS MYSMYS
MYSMYSMYS
MYSMYSMYS MYSMYSMYS MYSMYSMYSMYSMYS
MYSMYSMYSMYSMYSMYSMYS MYSMYSMYSMYSMYS
MYSMYSMYSMYSMYSMYSMYSMYS
MYSMYSMYS MYSMYS MYSMYS MYS MYSMYSMYS
MYSMYS MYSMYS MYSNORNORNORNOR NORNOR NOR NORNORNOR NORNORNORNOR NORNOR NOR NORNOR NOR NORNORNOR NORNOR
NORNOR NORNORNOR NORNOR NORNORNOR NORNORNOR NOR
NORNORNOR NORNORNORNORNORNORNOR NORNORNORNORNOR NOR NORNORNORNORNORNORNORNORNOR NORNORNORNORNORNOR NOR NORNORNORNORNORNOR NORNORNORNOR NOR NORNOR
NZLNZL
NZL
NZLNZLNZLNZL
NZLNZL
NZL
NZLNZLNZLNZLNZL
NZL
NZL
NZLNZLNZLNZL
NZLNZLNZL
NZLNZL
NZLNZLNZLNZL
NZL
NZLNZLNZL
NZLNZL
NZL
NZLNZL
NZL
NZL
NZLNZL
NZL
NZL
NZL
NZLNZL
NZLNZLNZLNZL
NZLNZL
NZL
NZLNZL
NZL
NZLNZL
NZL
NZL
NZLNZL
NZLNZLNZLNZL
NZLNZLNZL
NZLNZL
NZLNZLNZL
NZL
NZLNZL NZL NZLNZLNZL
NZLPAKPAK PAKPAK PAK PAKPAK PAK PAK PAKPAKPAKPAKPAK PAKPAK PAK PAKPAK PAKPAKPAKPAK PAKPAK PAK PAKPAKPAK PAK PAKPAKPAK PAKPAK PAKPAKPAKPAKPAK PAKPAK PAKPAK PAK PAKPAK PAKPAKPAK PAKPAKPAK PAKPAK PAKPAK PAKPAKPAK PAK PAK PAKPAK PAK PAKPAKPAK PAKPAKPAKPAKPAKPAKPAK PAKPAK PAKPAKPAK PAKPAKPAK PAKPERPER PERPERPERPER PERPER PERPERPERPER PERPER PERPER PERPERPER PER PERPERPER PERPER PERPER PERPERPER PERPERPERPERPER PERPERPERPER PER PERPER PERPER PER PERPERPER PERPER PERPERPERPERPER PER PERPERPER PERPER PER PERPERPER PERPERPERPERPERPERPERPER PERPER PERPERPERPER PERPER PERPHLPHLPHL PHLPHLPHLPHL PHLPHL PHL PHLPHL PHL PHLPHLPHL PHLPHLPHL PHLPHL PHLPHLPHL PHLPHLPHLPHL PHLPHL PHLPHL PHLPHLPHL PHL PHLPHL PHLPHLPHL PHL PHLPHLPHLPHL PHLPHLPHL PHLPHL PHLPHL PHLPHLPHLPHL PHLPHLPHL PHLPHL PHLPHLPHLPHL PHLPHLPHLPHL PHLPHL PHLPHLPHL PHL PHLPHLPHL PHL PRTPRT
PRTPRT
PRTPRTPRTPRTPRTPRTPRTPRTPRT
PRTPRTPRT PRT
PRT PRTPRT
PRTPRTPRTPRTPRTPRT
PRTPRTPRTPRT PRTPRT
PRT PRTPRTPRT PRTPRTPRT PRTPRT
PRTPRTPRTPRTPRTPRTPRTPRTPRT
PRTPRTPRT PRTPRTPRT
PRTPRTPRTPRTPRT
PRT
PRTPRT PRT
PRTPRTPRT PRTPRT
PRTPRTPRT PRTPRT
PRTPRT
PRTPRT RUSRUSRUSRUS RUSRUSRUS RUSRUSRUSRUS RUSRUS RUSRUSRUS RUSRUS RUSRUS RUSRUS RUS RUSRUS RUSRUS RUSRUS RUSRUSRUS RUSRUSRUS RUSRUSRUSRUS RUS RUSRUSRUS RUSRUSRUSRUSRUSRUSRUSRUS RUSRUSRUS RUSRUSRUSRUS RUSRUSRUSRUSRUS RUSRUS RUSRUSRUS RUSRUS RUSRUS RUS RUSRUSRUSRUS RUS RUSRUS RUSRUS RUS RUSRUSRUSSWESWE SWESWE SWE SWESWESWESWE SWESWESWESWESWESWESWE SWESWESWE SWESWESWESWESWESWESWE SWE SWESWE SWESWESWE SWESWE SWESWESWESWE SWESWE SWESWESWESWE SWESWESWE SWESWESWE SWESWE SWESWESWESWE SWESWESWESWE SWESWESWE SWESWE SWESWESWE SWESWE SWESWESWE SWESWESWE SWESWE SWE SWESWE SWESWE SWE
TURTUR
TUR TURTURTUR TURTUR TUR
TURTURTUR TURTURTURTURTUR
TURTURTUR
TURTURTUR TUR TURTURTURTUR
TURTUR TUR TURTURTURTUR TURTURTURTURTUR
TURTUR TURTURTURTUR
TURTURTUR TURTURTURTUR
TUR
TURTURTURTURTURTUR TUR TURTURTURTURTUR TUR TUR
TUR TURTUR TURTUR TURTUR
TURTURTURTUR
USA USAUSA USAUSAUSAUSAUSA USAUSA USAUSAUSA USA USAUSA USAUSAUSAUSAUSAUSA USA USAUSAUSAUSA USAUSAUSAUSAUSA USAUSAUSAUSAUSA USAUSAUSA USAUSAUSAUSA USAUSAUSA USAUSAUSAUSA USAUSA USAUSAUSAUSAUSAUSAUSA USA USAUSAUSAUSA USA USAUSAUSA USAUSAUSA USA USAUSAUSA USAUSA USA USAUSAUSAUSAUSA USAUSAUSAVEN
VENVEN
VENVEN
VEN
VEN
VENVEN
VEN
VENVEN
VENVENVENVEN
VEN
VENVEN
VENVEN
VENVEN
VEN
VENVEN
VENVENVEN VENVEN
VENVEN
VEN
VENVENVEN
VENVENVENVEN
VENVENVEN
VENVEN
VEN
VENVEN VEN
VENVEN
VENVEN
VENVENVENVENVENVENVEN
VEN
VENVEN
VEN
VEN
VENVENVEN
VEN
VEN
VEN
VENVENVEN
VEN
VENVEN
VEN
VEN
VEN
VEN
VENVEN
VEN
VEN
VENVENVEN
VEN
VENZAF
ZAFZAFZAFZAF ZAFZAF
ZAFZAFZAFZAF ZAFZAF
ZAF ZAFZAF
ZAFZAF ZAFZAFZAF
ZAF ZAFZAFZAFZAFZAF
ZAF ZAFZAF
ZAFZAF
ZAFZAF
ZAFZAF ZAFZAFZAF
ZAFZAFZAF
ZAFZAF
ZAF
ZAFZAF
ZAF
ZAF
ZAFZAFZAF
ZAF
ZAFZAFZAFZAF
ZAFZAFZAF
ZAFZAFZAFZAF ZAF
ZAFZAFZAF
ZAFZAF ZAF
ZAFZAF
ZAFZAFZAFZAF
ZAFZAFZAFZAF
ZAF
ZAF
-4.4
-4.2
-4-3
.8Es
timat
ed e
xcha
nge
rate
ela
stic
ity
-.5 0 .5Exchange rate shock
Specification 5: Alternative weightsExchange rate shock vs. magnitude of exchange rate bias
(d) Alternative weights
Figure 2: GETI: Relationship between exchange rate shock and the bias in the exchange rate elasticity.
19
ARGARG ARGARGARG ARGARG ARGARGARGARG ARGARGARGARGARGARG ARG ARGARG ARGARGARGARGARG ARGARGARG ARGARGARGARGARGARGARG ARGARG ARGARG ARGARG ARGARGARG ARG ARGARGARG ARGARG ARG ARGARGARGARGARGARG ARGARGARG ARG ARGARGARG ARGARGARG ARGARG ARGARG ARGARGARGARG ARG ARGARGARG ARGARGAUSAUS AUSAUSAUSAUSAUS AUS AUSAUS AUSAUS AUSAUS AUSAUSAUS AUSAUS AUSAUS AUSAUS AUSAUS AUSAUSAUSAUS AUSAUS AUS AUSAUSAUSAUS AUSAUSAUS AUS AUSAUS AUSAUS AUSAUSAUSAUS AUSAUSAUS AUS AUSAUSAUS AUS AUSAUSAUSAUS AUSAUS AUS AUSAUSAUS AUS AUSAUSAUS AUSAUS AUS AUSAUS AUSAUSAUS AUSAUSAUSAUS AUS AUSAUSAUS AUSAUT AUT AUTAUT AUTAUTAUTAUTAUT
AUTAUT AUTAUTAUTAUTAUT AUTAUTAUT AUTAUTAUTAUTAUTAUT AUTAUT AUTAUTAUTAUT AUTAUT AUTAUT AUTAUT AUT AUTAUTAUTAUT AUTAUTAUTAUT AUT AUTAUTAUT AUTAUT AUT AUTAUTAUTAUTAUT AUTAUT AUTAUT AUTAUTAUTAUTAUT AUTAUTAUTAUT AUTAUTAUT AUTAUT AUTAUTAUT AUTAUT AUTAUT AUT
BELBEL BELBEL BELBELBEL BELBEL BELBELBEL BELBELBELBEL BEL BELBELBEL BELBELBEL BELBELBEL BELBELBELBELBEL BELBELBEL BELBELBEL BELBEL BELBEL BELBEL BELBEL BEL BELBEL BELBELBEL BELBELBEL BEL BELBEL BEL BEL BELBEL BELBEL BELBEL BEL BELBEL BELBEL BELBELBELBELBELBEL BEL BELBEL BELBEL BELBELBEL BEL BELBELBRA BRA BRABRABRA BRABRA BRABRABRABRA BRABRABRA BRABRABRA BRABRA BRABRA BRABRABRA BRABRABRABRA BRABRABRA BRA BRABRA BRABRABRA BRABRABRABRA BRABRABRABRABRABRA BRABRA BRA BRABRA BRABRA BRABRA BRA BRABRABRA BRABRABRABRA BRABRA BRABRABRA BRABRA BRA BRABRA BRABRABRABRA BRABRA BRABRA BRABRABRACANCAN CANCANCANCAN CAN CAN CANCANCANCANCANCANCANCAN CANCAN CANCANCAN CANCANCAN CANCAN CANCAN CANCANCANCANCAN CANCANCAN CANCANCANCANCAN CANCANCANCAN CANCANCANCAN CANCANCAN CANCANCAN CANCANCAN CANCANCAN CAN CANCANCANCAN CANCAN CANCANCAN CANCAN CANCANCAN CANCAN CAN CANCAN
CHECHECHECHECHECHECHECHECHE CHECHECHE CHECHE CHE CHECHECHECHECHECHECHE CHECHE CHECHECHE CHECHE CHECHE CHECHECHECHE CHE CHECHECHECHE CHE CHECHECHECHECHE CHECHE CHECHECHECHE CHECHE CHECHECHECHECHE CHECHECHECHE CHE CHECHE CHECHE CHECHECHECHE CHECHE CHECHECHE CHECHE CHECHECHE CHECHECHE CHECHE CHE
CHLCHLCHL CHLCHL CHLCHLCHLCHLCHL CHL CHLCHLCHLCHLCHL CHLCHL CHLCHLCHL CHLCHLCHL CHLCHLCHL CHLCHLCHL CHLCHLCHL CHLCHLCHL CHL CHLCHLCHLCHLCHL CHLCHL CHLCHLCHL CHLCHLCHL CHLCHL CHLCHL CHLCHL CHLCHLCHLCHL CHL CHLCHLCHLCHL CHL CHLCHLCHL CHLCHL CHL CHLCHLCHL CHLCHL CHLCHLCHLCHLCHLCHL CHL CHLCHL CHLCHLCHLCHL
CHNCHN CHN CHNCHN CHNCHNCHN CHNCHN CHNCHN CHN CHNCHNCHN CHNCHNCHNCHN CHNCHN CHNCHN CHNCHN CHNCHN CHNCHN CHNCHN CHN CHNCHNCHN CHNCHNCHN CHNCHN CHNCHNCHN CHNCHNCHN CHNCHNCHNCHNCHN CHNCHN CHNCHNCHNCHN CHN CHN CHNCHNCHN CHNCHN CHNCHNCHNCHN CHNCHNCHN CHN CHNCHNCHNCHN CHN CHNCHNCHNCHN CHN CHNCHNCHN CHNCHNCHNCHNCHN CHNCHN
COLCOLCOL COLCOL COLCOLCOLCOL COL COLCOLCOL COL COLCOLCOLCOL COLCOL COL COLCOLCOL COLCOL COLCOL COLCOL COLCOL COL COLCOLCOL COLCOLCOLCOLCOL COLCOL COLCOLCOL COLCOL COLCOL COLCOL COLCOL COLCOL COLCOL COLCOL COLCOLCOLCOLCOLCOL COLCOLCOLCOLCOL COLCOL COLCOL COLCOL COL
DEUDEU DEUDEUDEUDEUDEUDEU DEUDEUDEUDEUDEUDEUDEUDEUDEUDEU DEU DEU
DEU DEU DEUDEU DEU DEUDEUDEU DEUDEU DEU DEUDEU
DEUDEUDEU DEUDEU
DEUDEUDEU DEUDEU DEUDEU
DEUDEU
DEUDEU DEUDEUDEUDEUDEUDEU DEUDEU
DEU DEUDEU DEUDEUDEUDEU DEU DEUDEU DEU
DEUDEUDEU DEUDEU DEUDEUDEUDEUDEU
DEUDEUDEU DEUDEU DEUDEUDEU
DNKDNK DNK DNKDNKDNKDNK DNKDNKDNK DNK DNKDNKDNKDNK DNK DNKDNK DNKDNK DNK DNKDNKDNKDNK DNKDNK DNKDNK DNK DNKDNK DNKDNKDNK DNK DNKDNKDNKDNK DNKDNK DNKDNKDNK DNKDNK DNKDNKDNKDNK DNKDNK DNK DNKDNKDNK DNKDNKDNKDNKDNKDNK DNKDNK DNKDNKDNK DNKDNKDNKDNKDNK DNKDNK DNKDNK DNKDZADZADZA DZADZADZADZADZADZA DZADZADZA DZADZA DZA DZADZADZA DZADZADZA DZADZA DZADZADZADZA DZA DZA DZADZADZA DZADZA DZADZADZA DZADZADZA DZA DZADZA DZA DZADZADZADZADZA DZA DZADZADZA DZADZADZADZA DZADZA DZADZADZA DZADZADZA DZADZA DZADZA DZADZADZA DZADZA DZADZADZA DZA
EGY
EGYEGYEGY
EGYEGY
EGYEGY
EGYEGYEGYEGYEGY
EGYEGY
EGY EGYEGYEGYEGY
EGY
EGYEGY EGYEGY
EGY EGY EGY
EGYEGY
EGYEGY
EGYEGY
EGYEGY
EGY EGY EGYEGYEGYEGY
EGYEGY
EGYEGY
EGYEGYEGY
EGYEGY EGYEGY
EGYEGYEGY
EGY
EGY
EGYEGY
EGYEGY
EGY
EGY
EGYEGY
EGYEGYEGY
EGYEGY
EGYEGY
EGY
EGYEGY
EGYEGYEGY
EGYEGYEGYEGY EGY EGY
EGY
EGYEGY
ESPESPESPESP ESPESPESPESP ESPESPESPESP ESPESP ESPESP ESPESPESPESP ESPESP ESP ESPESPESP ESPESPESP ESPESPESPESPESPESP ESPESPESPESPESPESP ESP ESPESPESPESPESPESP ESPESP ESP ESPESPESP ESPESPESP ESPESP ESPESPESPESP ESP ESPESPESPESPESP ESP ESPESPESP ESPESP ESPESPESP ESPESPESPESPESPESPESPESP ESPESPESPESP ESPESP ESPFINFINFIN FINFINFINFIN FIN FINFIN FINFIN FINFIN FINFIN FINFIN FINFIN FINFIN FINFINFIN FIN FINFINFIN FINFINFIN FINFIN FINFIN FINFIN FINFINFIN FINFIN FIN FIN FIN FINFINFINFIN FINFINFIN FIN FINFINFINFIN FINFINFIN FINFINFINFINFIN FINFINFIN FIN FINFINFINFIN FINFINFINFIN FINFINFINFIN FINFINFIN FIN
FRA FRAFRAFRAFRAFRAFRA FRAFRA FRA FRAFRA FRAFRAFRA FRAFRA FRAFRAFRAFRAFRAFRA
FRAFRA FRAFRAFRAFRA FRA
FRAFRAFRAFRA FRAFRA FRAFRAFRA FRA
FRAFRA
FRA FRA FRAFRAFRA
FRA FRAFRA FRAFRAFRAFRAFRAFRA FRAFRAFRAFRA FRA FRAFRA FRA
FRA FRAFRAFRA FRA FRA FRAFRAFRAFRAFRAFRAFRAFRAFRAFRA
FRAFRAFRAFRA
FRA FRAFRAFRAFRA FRA FRAFRAFRAFRA FRAGBR GBR
GBRGBR
GBRGBRGBR GBR
GBRGBR GBRGBR
GBR GBRGBR GBRGBRGBR GBRGBRGBRGBRGBR
GBRGBR GBRGBRGBRGBR GBRGBRGBRGBR GBR GBR GBR
GBR GBRGBR GBRGBRGBRGBR
GBRGBRGBRGBRGBRGBRGBRGBRGBRGBR
GBRGBRGBR GBR
GBRGBRGBRGBRGBR
GBRGBRGBR
GBRGBRGBRGBR GBR
GBRGBR GBRGBR
GBRGBR
GBRGBR
GBR GBRGBRGBRGBRGBRGBR GBRGBRGBR
GBR
GRC GRCGRCGRCGRCGRCGRC GRCGRC GRCGRCGRC GRCGRC GRCGRC GRCGRCGRCGRC GRC GRCGRC GRCGRCGRC GRCGRCGRCGRC GRCGRCGRC GRCGRC GRC GRCGRC GRCGRCGRC GRCGRCGRCGRCGRCGRCGRC GRCGRC GRCGRC GRCGRC GRCGRC GRCGRCGRCGRC GRCGRC GRCGRC GRCGRCGRCGRCGRC GRCGRC GRCGRCGRC GRCGRCGRCGRCGRCGRC
IND INDINDINDINDINDIND
INDINDINDIND
INDINDINDIND INDINDINDIND
IND
INDIND
INDIND
IND INDIND
INDIND
INDIND INDIND
INDINDIND
IND INDINDIND
INDINDIND
INDINDINDIND
IND IND INDIND
INDIND
INDIND
INDINDIND
INDINDINDIND
INDIND
IND
IND
IND
IND
INDINDIND
INDINDIND
INDINDINDIND
INDINDIND
INDINDINDIND
IRL IRLIRLIRLIRL IRLIRLIRL IRLIRL IRLIRL IRLIRLIRL IRLIRLIRLIRL IRLIRL IRLIRLIRLIRL IRL IRLIRL IRLIRL IRLIRLIRL IRLIRL IRL IRLIRL
IRLIRL IRLIRL IRLIRLIRLIRL IRL IRL IRLIRLIRLIRL IRLIRL IRL IRL
IRL IRL IRLIRL IRLIRL IRLIRL IRL IRLIRL IRLIRLIRL IRLIRL IRLIRL IRLIRL IRLIRL IRL IRL
IRLIRLIRL
IRLIRLIRL
ISR ISR ISRISR ISRISRISR ISRISR ISRISRISRISR ISRISRISR ISRISR ISR ISRISRISRISR ISRISRISRISRISR ISR ISRISRISR ISRISRISRISR ISRISRISRISR ISRISRISR ISRISR ISR ISRISR ISR ISRISR ISRISRISRISR ISRISRISR ISRISRISR ISRISRISR ISRISR ISR ISR ISRISRISR ISRISR ISRISRISR ISRISRISR ISR ISRISRISR ISR ISR
ITAITA
ITAITAITAITA
ITAITAITAITAITAITA
ITAITA
ITA ITAITA
ITAITAITA ITAITAITAITAITA
ITA ITAITA
ITAITA
ITAITAITA ITAITA ITAITAITA ITAITAITA
ITAITAITA ITAITAITAITAITA ITA ITA ITAITAITA ITA ITA
ITA ITAITAITA ITAITA ITAITAITAITAITA ITAITA ITA
ITAITAITA ITAITA ITAITA ITAITAITA ITA ITAITAJPNJPN JPN JPNJPNJPN JPNJPN JPNJPN JPNJPN JPNJPN JPN JPNJPNJPN JPN JPNJPN JPN JPNJPNJPN JPN JPNJPN JPNJPNJPNJPNJPN JPNJPNJPN JPN JPNJPNJPNJPNJPNJPN JPNJPN JPNJPNJPN JPNJPN JPNJPN JPNJPNJPN JPNJPN JPNJPN JPN JPNJPNJPN JPNJPNJPN JPNJPNJPN JPN JPNJPN JPNJPNJPNJPNJPNJPNJPNJPN JPN JPNJPNJPNJPNJPN
KOR KORKORKORKOR KOR KORKORKOR KORKORKOR KORKOR KORKORKORKORKORKOR KORKOR KORKORKOR KORKORKOR KORKORKOR KOR KORKOR KORKORKOR KORKOR KORKORKOR KOR KOR KORKOR KORKOR KORKOR KORKOR KORKORKORKORKOR KORKOR KOR KORKORKOR KOR KORKOR KOR KORKORKOR KORKORKOR KOR KORKORKOR KORKOR KORKOR KORKOR KORKOR KOR KORKOR
MEX MEXMEX MEXMEXMEXMEXMEX MEXMEX MEXMEX MEXMEXMEX MEXMEX MEXMEXMEX MEXMEXMEX MEXMEXMEX MEXMEX MEXMEXMEX MEXMEXMEX MEXMEXMEX MEXMEXMEXMEX MEXMEX MEXMEX MEXMEXMEX MEXMEXMEXMEXMEX MEXMEX MEXMEX MEXMEXMEX MEXMEX MEXMEXMEXMEX MEXMEX MEXMEX MEXMEXMEX MEX MEX
MYS MYSMYSMYS MYS MYSMYS MYS MYSMYSMYS MYSMYSMYS MYSMYS MYSMYS MYSMYSMYS MYSMYS MYSMYSMYSMYSMYSMYS MYSMYS MYSMYSMYS MYSMYS MYSMYSMYS MYSMYS MYSMYS MYSMYS MYSMYS MYSMYSMYS MYSMYSMYSMYSMYS MYSMYSMYSMYS MYSMYSMYS MYSMYSMYSMYS MYS MYSMYSMYSMYSMYSMYSMYSMYS MYSMYSMYS MYSMYS MYSMYS MYS MYS MYSMYS MYSMYS MYSMYS MYSNORNOR NORNOR NORNOR NOR NORNORNOR NORNORNORNOR NORNOR NOR NORNOR NOR NORNORNOR NORNOR NORNOR NORNORNOR NORNOR NORNORNOR NORNORNOR NORNOR NORNOR NORNORNOR NORNORNOR NOR NORNORNORNORNOR NOR NORNORNORNORNORNORNORNORNOR NORNORNORNORNORNOR NOR NORNORNORNORNORNOR NORNORNORNOR NOR NORNORNZL NZLNZL NZLNZLNZLNZL NZLNZLNZL NZLNZLNZLNZLNZLNZL NZLNZLNZL NZLNZLNZL NZL NZLNZL NZL NZLNZLNZL NZLNZL NZLNZLNZL NZLNZL NZLNZL NZLNZL NZLNZLNZL NZLNZL NZLNZL NZLNZLNZL NZLNZLNZL NZL NZLNZL NZLNZL NZLNZL NZLNZL NZL NZLNZL NZLNZLNZL NZL NZLNZLNZLNZL NZLNZLNZLNZL NZLNZL NZL NZLNZLNZLNZL
PAKPAK PAKPAK PAK PAK
PAKPAK
PAK PAKPAKPAKPAK
PAKPAKPAK PAK
PAKPAK
PAKPAKPAKPAK PAKPAK PAK
PAKPAKPAK
PAK PAKPAKPAKPAK
PAKPAKPAK PAKPAK
PAKPAK
PAK PAKPAK
PAKPAK
PAKPAKPAKPAK PAKPAK
PAK
PAKPAK
PAKPAK PAKPAKPAK PAK PAK PAKPAK PAK PAKPAKPAK
PAKPAKPAKPAKPAKPAKPAK
PAKPAK
PAKPAKPAK PAKPAKPAK PAK
PERPER PER PERPERPER PERPER PERPERPERPER PERPER PERPER PERPERPER PER PERPERPER PERPER PERPER PERPERPER PERPERPERPERPER PERPER PERPER PER PERPER PERPER PER PERPERPER PERPER PERPERPERPERPER PER PERPERPER PERPER PER PERPERPER PERPERPER PER PERPERPERPER PERPER PERPERPERPER PERPER PERPHLPHLPHL PHLPHLPHLPHL PHLPHL PHL PHLPHL PHL PHLPHLPHL PHLPHLPHL PHLPHL PHLPHLPHL PHLPHLPHLPHL PHLPHL PHLPHL PHLPHLPHL PHL PHLPHL PHLPHLPHL PHL PHLPHLPHLPHL PHLPHLPHL PHLPHL PHLPHL PHLPHLPHLPHL PHLPHLPHL PHLPHL PHLPHLPHLPHL PHLPHLPHLPHL PHLPHL PHLPHLPHL PHL PHLPHLPHL PHL PRTPRTPRT PRTPRTPRTPRT PRTPRTPRTPRTPRTPRT PRTPRTPRT PRT PRT PRTPRT PRTPRTPRT PRTPRTPRT PRTPRTPRTPRT PRTPRT PRT PRTPRTPRT PRTPRTPRT PRTPRT PRTPRTPRTPRTPRTPRTPRTPRTPRT PRTPRTPRT PRTPRTPRT PRTPRTPRTPRT PRTPRT PRTPRT PRTPRT PRTPRT PRTPRTPRT PRTPRT PRTPRTPRT PRT PRTPRT
RUSRUSRUSRUS RUSRUSRUS RUSRUSRUSRUS RUSRUS RUSRUSRUS RUSRUS RUSRUS RUSRUS RUS RUSRUS RUSRUS RUSRUS RUSRUSRUS RUSRUS RUS RUSRUSRUSRUS RUS RUSRUSRUS RUSRUSRUSRUSRUSRUSRUSRUS RUSRUSRUS RUSRUSRUSRUS RUSRUSRUSRUSRUS RUSRUS RUSRUSRUS RUSRUS RUSRUS RUS RUSRUSRUSRUS RUS RUSRUS RUSRUS RUS RUSRUSRUS
SWESWE
SWESWE
SWESWE
SWESWESWE
SWESWESWESWESWE
SWESWE
SWESWESWE SWESWESWESWESWESWESWE SWESWESWE SWE
SWESWESWE
SWESWESWESWE
SWESWESWE
SWESWESWESWE
SWESWESWE SWESWESWE SWESWE
SWESWESWESWE SWE SWE
SWESWE SWESWESWESWE
SWESWE
SWESWESWESWE
SWESWESWESWESWE
SWESWE
SWESWE SWE
SWESWE
SWESWE
TURTURTUR TUR TURTUR TURTUR TURTUR TUR TUR TURTURTURTURTUR TURTURTUR TURTURTUR TUR TURTURTURTUR TURTUR TUR TURTURTURTUR TURTURTURTURTUR TURTUR TURTURTURTUR TURTURTUR TURTURTURTURTUR TURTUR TURTURTURTUR TUR TURTURTURTURTUR TUR TURTUR TURTUR TURTUR TURTUR TURTURTUR TURUSA USAUSA USAUSAUSA USAUSA
USAUSA USAUSAUSA USA USAUSA USAUSAUSAUSAUSAUSA USA USAUSAUSAUSA USAUSAUSAUSAUSA USAUSAUSAUSAUSA USAUSAUSA USAUSAUSAUSA USAUSAUSA USAUSAUSAUSA USAUSA USAUSAUSAUSAUSAUSA
USA USA USAUSAUSAUSA USA USAUSAUSA USAUSAUSA USA USAUSAUSA USAUSA USA USAUSAUSAUSAUSA USAUSAUSA
VEN VENVENVENVEN VENVEN VENVEN VENVENVEN VENVENVENVEN VENVEN VEN VENVENVENVEN VENVENVEN VENVENVEN VENVENVENVEN VENVEN VENVEN VEN VENVENVENVENVEN VEN VENVENVEN VENVEN VENVEN VENVENVEN VENVENVENVENVENVENVEN VENVEN VENVEN VENVEN VENVENVEN VENVEN VENVENVENVEN VENVEN VENVEN VENVEN VENVEN VENVEN VENVENVENVEN VEN
ZAF ZAFZAFZAFZAF ZAFZAF ZAFZAF ZAFZAF ZAFZAF ZAF ZAFZAF ZAFZAF ZAFZAFZAF ZAF ZAFZAFZAFZAFZAF ZAF ZAFZAFZAF ZAFZAFZAF ZAFZAF ZAFZAFZAFZAF ZAFZAF ZAFZAFZAF ZAFZAF ZAFZAF ZAFZAF ZAFZAF ZAFZAFZAFZAF ZAFZAFZAFZAF ZAFZAFZAF ZAFZAFZAFZAF ZAFZAF ZAFZAF ZAF ZAFZAFZAF ZAFZAFZAFZAF ZAFZAF ZAF
.9.9
51
1.05
1.1
Estim
ated
exc
hang
e ra
te e
last
icity
-.6 -.4 -.2 0 .2Exchange rate shock
Specification 2: Gold medal mistakeExchange rate shock vs. magnitude of demand bias
(a) Gold medal mistake
ARG
ARG
ARG
ARGARG
ARG
ARG
ARG
ARGARGARG
ARGARGARGARG
ARGARGARG
ARG
ARG
ARGARG
ARGARGARGARG
ARGARG
ARGARGARG
ARGARGARGARG
ARG
ARG
ARGARG
ARG
ARG
ARG
ARG
ARG
ARG
ARG
ARGARG
ARG
ARG
ARG
ARGARG
ARGARGARG
ARG
ARG
ARGARG
ARG
ARG
ARGARG
ARGARGARG
ARG
ARG
ARG
ARG
ARGARG
ARGARG
ARG
ARGARG
ARG
ARG
ARGAUSAUS
AUS
AUSAUSAUS
AUS
AUS
AUS
AUS
AUSAUS
AUS
AUSAUSAUS
AUS
AUS
AUS
AUS
AUS
AUSAUS
AUSAUSAUS
AUSAUS
AUS
AUSAUS
AUSAUSAUS
AUS
AUS
AUSAUS
AUS
AUS
AUS
AUS
AUSAUS
AUSAUSAUS
AUS
AUS
AUS
AUS
AUS
AUS
AUSAUSAUS
AUS
AUSAUSAUSAUS
AUSAUS
AUSAUS
AUS
AUSAUS
AUSAUS
AUS
AUSAUS
AUS
AUS
AUSAUSAUSAUSAUSAUS
AUS
AUS
AUS
AUS
AUS
AUS
AUT
AUT
AUT
AUTAUTAUT
AUTAUT
AUT
AUT
AUT
AUT
AUT
AUTAUTAUT
AUTAUT
AUTAUTAUT
AUT
AUT
AUT
AUTAUTAUT
AUTAUT
AUT
AUT
AUT
AUTAUT
AUT
AUT
AUT
AUTAUT
AUTAUT
AUT
AUT
AUTAUTAUT
AUTAUTAUT
AUT
AUT
AUTAUT
AUTAUTAUTAUT
AUT
AUT
AUT
AUT
AUT
AUTAUTAUT
AUTAUT
AUT
AUTAUTAUT
AUTAUT
AUTAUT
AUT
AUTAUT
AUT
AUT
AUT
AUTAUTAUT
BELBEL
BEL
BEL
BELBELBEL
BEL
BEL
BEL
BELBEL
BELBEL
BEL
BEL
BEL
BEL
BELBEL
BELBELBEL
BELBEL
BEL
BEL
BELBEL
BEL
BEL
BEL
BELBEL
BEL
BEL
BEL
BEL
BEL
BEL
BEL
BEL
BEL
BEL
BEL
BELBEL
BEL
BELBEL
BEL
BELBEL
BELBEL
BEL
BELBEL
BELBEL
BELBEL
BEL
BEL
BEL
BELBEL
BEL
BEL
BELBEL
BELBELBEL
BELBEL
BELBEL
BEL
BEL
BEL
BEL
BELBEL
BELBELBEL
BRA
BRABRA
BRABRABRA
BRA
BRA
BRABRABRA
BRA
BRA
BRA
BRA
BRABRA
BRA
BRA
BRA
BRABRABRA
BRA
BRA
BRABRABRABRABRA
BRABRA
BRA
BRA
BRABRA
BRA
BRABRABRABRA
BRABRABRA
BRABRABRA
BRA
BRABRA
BRA
BRABRA
BRA
BRA
BRA
BRABRA
BRABRABRA
BRABRABRA
BRABRABRA
BRABRA
BRABRA BRA BRABRA
BRA
BRABRABRA
BRA
BRA
BRABRA
BRABRABRACAN
CAN
CANCAN
CANCAN
CAN
CANCAN
CANCANCANCANCANCAN
CAN
CAN
CAN
CANCAN
CAN
CANCAN
CAN
CAN
CAN
CAN
CANCANCANCAN
CANCAN
CAN
CANCAN
CANCANCAN
CAN
CAN
CANCAN
CANCAN
CANCAN
CANCAN
CAN
CANCAN
CANCAN
CAN
CANCAN
CAN
CANCAN
CAN
CAN
CANCANCAN
CAN
CAN
CAN
CAN
CANCAN
CAN
CAN
CANCANCAN
CAN
CANCAN
CANCANCHECHECHECHECHECHECHECHECHE
CHE
CHECHE
CHE
CHE
CHE
CHECHECHECHECHE
CHE
CHE
CHE
CHECHECHE
CHE
CHE
CHE
CHECHE
CHECHECHE
CHE
CHECHE
CHE
CHECHECHE
CHECHECHECHE
CHE
CHE
CHE
CHECHE
CHECHECHE
CHE
CHECHE
CHECHECHE
CHECHECHE
CHECHE
CHE
CHE
CHE
CHECHECHECHE
CHE
CHECHE
CHECHE
CHE
CHE
CHE
CHE
CHECHE
CHE
CHE
CHE
CHE
CHECHE
CHLCHLCHL
CHLCHL
CHL
CHLCHLCHLCHL
CHLCHL
CHLCHLCHL
CHL
CHL
CHL
CHLCHL
CHL
CHLCHLCHL
CHLCHL
CHL
CHL
CHLCHL
CHL
CHLCHL
CHLCHLCHLCHL
CHLCHLCHL
CHLCHL
CHL
CHL
CHLCHL
CHL
CHL
CHLCHL
CHL
CHL
CHL
CHLCHLCHL
CHLCHL
CHLCHL
CHLCHLCHLCHL
CHL
CHLCHL
CHL
CHL
CHL
CHL
CHLCHL
CHL
CHL
CHLCHLCHLCHL
CHLCHLCHL
CHL
CHLCHL
CHL
CHL
CHLCHLCHLCHNCHN
CHNCHNCHN
CHNCHNCHN
CHNCHN
CHN
CHNCHN
CHN
CHNCHN
CHNCHN
CHNCHN
CHNCHNCHN
CHN
CHNCHNCHN
CHN
CHN
CHN
CHNCHN CHN CHNCHNCHN
CHNCHN
CHN
CHNCHN
CHNCHNCHN CHNCHNCHN
CHN
CHNCHNCHNCHN
CHNCHN
CHNCHNCHNCHN
CHNCHN CHNCHNCHN
CHNCHN
CHN
CHNCHNCHN
CHNCHNCHN CHN CHNCHNCHN
CHN
CHNCHN
CHNCHN
CHNCHN
CHN
CHNCHN CHNCHNCHNCHNCHN
CHNCHN
COLCOL
COLCOL
COL
COL
COLCOL
COL
COL
COLCOL
COL
COL
COL
COLCOL
COLCOLCOL
COLCOL
COLCOLCOL
COL
COL
COL
COLCOL
COL
COLCOL
COL
COL
COL
COLCOL
COLCOL
COL
COL
COL
COL
COLCOL
COL
COL
COL
COL
COL
COL
COLCOL
COLCOL
COL
COL
COL
COL
COLCOLCOLCOL
COLCOL
COLCOL
COLCOLCOL
COL
COLCOL
COL
COL
COL
COLDEU
DEUDEUDEUDEU
DEU
DEUDEUDEUDEUDEUDEUDEUDEU
DEUDEUDEUDEU
DEUDEU
DEU
DEUDEU
DEU DEUDEU
DEUDEUDEU
DEU DEUDEU
DEU
DEU
DEUDEUDEU
DEU
DEUDEU
DEU
DEUDEUDEUDEU
DEU
DEU
DEUDEU DEUDEU
DEU
DEUDEU
DEUDEU
DEU
DEUDEUDEU DEU
DEUDEUDEUDEU DEU
DEUDEU
DEUDEUDEU DEU
DEU
DEUDEUDEUDEUDEU
DEUDEUDEU
DEUDEU
DEUDEUDEU DNK
DNK
DNK
DNK
DNKDNKDNKDNKDNK
DNK
DNKDNKDNK
DNKDNK
DNKDNK
DNKDNK
DNK
DNKDNKDNK
DNKDNK
DNK
DNKDNK
DNK
DNK
DNK
DNK
DNK
DNKDNK
DNK
DNK
DNKDNK
DNKDNK
DNK
DNKDNK
DNKDNK
DNK
DNKDNKDNKDNK
DNK
DNK
DNKDNK
DNKDNK
DNK
DNKDNKDNK
DNK
DNK
DNKDNK
DNKDNK
DNK
DNKDNKDNKDNK
DNK
DNK
DNK
DNK
DNK
DNK
DZA
DZA
DZA
DZADZA
DZA
DZA
DZADZA
DZADZA
DZA
DZA
DZA
DZA
DZADZA
DZA
DZA
DZA
DZA
DZA
DZA
DZA
DZADZA
DZA
DZA
DZA
DZA
DZADZA
DZA
DZA
DZA
DZADZA
DZA
DZADZA
DZA
DZA
DZA
DZA
DZADZA
DZA
DZA
DZA
DZA
DZA
DZA
DZA
DZADZA
DZADZA
DZA
DZA
DZA
DZADZA
DZA
DZADZA
DZADZA
DZA
DZA
DZA
DZADZA
DZA
DZA
DZADZA
DZA
DZAEGY
EGYEGY
EGY
EGY
EGY
EGYEGY
EGY
EGYEGYEGYEGY
EGY
EGYEGY
EGYEGY
EGYEGY
EGY
EGYEGY
EGY
EGYEGY
EGYEGY
EGY
EGY
EGY
EGY
EGY
EGY
EGY
EGY
EGYEGY
EGYEGY
EGYEGYEGY
EGY
EGYEGY
EGYEGY
EGY
EGY
EGYEGYEGY
EGYEGYEGY
EGY
EGY
EGYEGY
EGY
EGY
EGY
EGY
EGY
EGYEGY
EGYEGYEGY
EGY
EGYEGY
EGY
EGYEGY
EGYEGY
EGY
EGYEGY
EGYEGYEGY
EGY
EGY
EGYEGY
ESPESP
ESPESP
ESPESPESPESP
ESPESP
ESPESP
ESP
ESP
ESP
ESP
ESP
ESPESPESP
ESPESP
ESPESP
ESPESP
ESP
ESPESP
ESP
ESPESPESPESPESP
ESPESPESPESPESP
ESPESP
ESP
ESPESP
ESPESP
ESPESPESP
ESPESPESPESP
ESP
ESPESP
ESP
ESP
ESP
ESPESPESPESP
ESP
ESPESPESP
ESP
ESP
ESP
ESPESPESP
ESP
ESPESP
ESP
ESPESPESPESP
ESPESPESP
ESP
ESPESPESPESPESP
ESP
ESP FINFIN
FIN
FINFINFINFIN
FINFIN
FINFINFIN FINFIN
FINFIN
FINFIN
FIN
FINFIN
FIN
FIN
FINFINFIN
FINFIN
FIN
FINFIN
FINFIN
FINFIN
FINFIN
FIN
FINFIN
FINFIN
FINFIN
FINFINFIN
FINFINFINFIN
FINFIN
FIN
FINFIN
FINFIN
FINFINFIN
FINFIN
FINFINFINFINFIN
FINFINFINFINFINFIN
FINFINFIN
FIN
FINFINFIN
FIN
FINFINFINFIN
FRA
FRAFRA
FRAFRAFRA
FRA
FRA
FRA
FRA
FRAFRAFRAFRA
FRAFRA
FRA
FRAFRA
FRA
FRAFRA
FRA
FRA
FRAFRA
FRAFRAFRA
FRA
FRA
FRAFRA
FRA
FRAFRA
FRAFRA
FRA
FRA
FRA
FRA
FRA
FRAFRA
FRA
FRA
FRA
FRAFRA
FRAFRA
FRA
FRAFRAFRA
FRAFRAFRA
FRAFRA
FRAFRAFRA
FRA
FRAFRAFRAFRAFRA
FRA
FRAFRAFRA
FRA
FRA
FRAFRAFRA
FRA
FRAFRA
FRA
FRA
FRAFRAFRAFRA
FRAFRAFRA
FRAFRAFRA
FRAGBR
GBR
GBR
GBR
GBR
GBRGBR
GBR
GBRGBRGBR
GBR
GBR
GBRGBRGBR
GBR
GBR
GBRGBRGBR
GBRGBR
GBRGBRGBR
GBRGBRGBR
GBRGBRGBRGBR
GBRGBR
GBR
GBR
GBR
GBR
GBR
GBRGBRGBR
GBRGBRGBRGBR
GBR
GBRGBRGBRGBRGBR
GBRGBR
GBRGBR
GBR
GBRGBRGBRGBR
GBR
GBRGBR
GBRGBR
GBR
GBR
GBR
GBR
GBRGBR
GBR
GBR
GBR
GBR
GBR
GBRGBR
GBRGBRGBRGBRGBR
GBR
GBR
GBR
GBRGRC
GRCGRCGRC
GRCGRC
GRC
GRCGRCGRC
GRCGRC
GRC
GRC
GRC
GRC
GRC
GRCGRC
GRC
GRC
GRC
GRC
GRCGRC
GRC
GRCGRC
GRCGRC
GRC
GRCGRC
GRC
GRC
GRC
GRC
GRC
GRCGRCGRC
GRC
GRCGRC
GRC
GRCGRC
GRC
GRCGRC
GRCGRCGRC
GRC
GRCGRC
GRCGRCGRC
GRC
GRC
GRC
GRC
GRC
GRCGRCGRC
GRCGRC
GRC
GRC
GRCGRC
GRC
GRC
GRC
GRCGRCGRCGRC
IND INDIND
INDINDINDIND
INDIND
INDINDIND
INDINDIND
INDINDINDIND
IND
IND
IND
IND
INDIND
IND
IND
IND
IND
IND
INDINDIND
INDIND
IND
INDIND
INDIND
INDIND
INDINDINDIND
IND
INDIND
IND
IND
IND
IND
IND
IND
IND
INDIND
IND
INDINDIND
IND
INDIND
IND
IND
IND
IND
INDIND
INDIND
IND
INDINDINDIND
INDIND
IND
INDIND
INDINDIRL IRL
IRLIRLIRLIRLIRL
IRLIRL
IRL IRLIRLIRLIRLIRL
IRLIRLIRLIRL IRLIRL IRL
IRLIRLIRL IRL IRLIRL
IRLIRL
IRLIRLIRLIRL
IRLIRL IRL
IRLIRL
IRL IRLIRLIRLIRL
IRLIRL IRL IRLIRLIRLIRL
IRLIRL
IRL IRLIRL
IRLIRL IRLIRL IRLIRL
IRLIRL
IRLIRL
IRLIRL
IRLIRLIRLIRL IRL
IRLIRL
IRLIRLIRL
IRL IRL
IRL
IRLIRL
IRL
IRLIRL
ISRISR
ISR
ISRISR
ISRISR
ISRISR
ISR
ISRISRISR
ISR
ISR
ISR
ISRISR
ISRISRISR
ISRISR
ISRISRISRISR
ISR
ISRISR
ISRISR ISRISRISRISR
ISRISRISR
ISR
ISR
ISRISRISR
ISR
ISR
ISR
ISRISR
ISRISR
ISR
ISR
ISRISR
ISRISR
ISR
ISRISRISR
ISRISR
ISR
ISR
ISR
ISRISR
ISRISRISRISR
ISR
ISRISR
ISR
ISRISR
ISRISR
ISR
ISRISRISR
ISRITA
ITA
ITAITAITA
ITA
ITAITAITA
ITAITAITA
ITA
ITA
ITA
ITA
ITA
ITA
ITAITAITA
ITAITAITA
ITA
ITAITA
ITA
ITA
ITA
ITA
ITAITAITA
ITAITA
ITAITAITA
ITAITA
ITAITA
ITA
ITA
ITA
ITAITAITA
ITAITAITA
ITA
ITAITA
ITA
ITAITAITA
ITA
ITA
ITAITA
ITA
ITAITA
ITA
ITAITAITA
ITAITA
ITA ITA
ITAITAITAITA
ITAITAITA
ITAITA
JPNJPN
JPNJPN
JPNJPN
JPNJPN JPN
JPN
JPNJPNJPN
JPN
JPN JPNJPN
JPNJPN JPN
JPN
JPNJPNJPN
JPNJPN
JPN
JPN
JPNJPNJPN
JPNJPNJPNJPNJPN
JPNJPNJPNJPNJPNJPNJPN JPNJPN JPN
JPNJPN
JPN
JPNJPNJPN
JPNJPNJPN
JPN
JPN
JPNJPN
JPNJPN
JPNJPN
JPN
JPNJPN
JPN
JPNJPNJPN
JPNJPN
JPNJPNJPNJPNJPN
JPNJPN
JPN
JPNJPNJPNJPNJPN
JPNKOR
KORKORKORKOR
KORKOR
KORKOR
KORKORKOR
KOR
KOR
KORKORKORKORKORKOR
KORKOR
KORKORKOR
KORKOR
KOR
KORKOR
KORKORKOR
KORKORKOR
KORKOR
KOR
KORKORKOR
KORKORKOR
KORKOR
KOR
KORKOR KORKOR
KORKORKORKORKOR
KOR
KORKOR
KORKORKOR
KORKOR
KOR
KOR KORKOR
KOR
KORKORKOR
KORKOR
KORKOR
KOR
KORKOR
KOR
KORKORKOR
KORKOR
KORKOR
MEX
MEXMEX
MEXMEXMEXMEX
MEXMEXMEX
MEX
MEX
MEXMEX
MEX
MEX
MEX
MEX
MEX
MEX
MEXMEX
MEX
MEXMEX
MEX
MEX
MEX
MEX
MEXMEX
MEXMEXMEX
MEXMEX
MEX
MEX
MEXMEX
MEX
MEX
MEX
MEXMEXMEX
MEXMEXMEXMEXMEXMEXMEX
MEX
MEX
MEX
MEX
MEXMEX
MEX
MEX
MEXMEXMEX
MEX
MEX
MEXMEX
MEXMEXMEX
MEX
MEX
MEX
MEX
MYS
MYS
MYSMYS
MYSMYS
MYSMYS
MYSMYS
MYSMYSMYS
MYS
MYS
MYS
MYS
MYSMYSMYSMYS
MYS
MYS
MYSMYSMYS
MYSMYSMYS
MYSMYS
MYSMYS
MYSMYSMYS
MYSMYSMYS
MYS
MYS
MYSMYS
MYS
MYS
MYSMYS
MYSMYS
MYSMYSMYSMYS
MYSMYS
MYSMYSMYS
MYS
MYSMYSMYS
MYSMYS
MYSMYSMYS
MYSMYSMYSMYSMYSMYS
MYS
MYS
MYSMYSMYS
MYSMYSMYS
MYSMYS
MYSMYS
MYS
MYS
MYSMYSMYS
MYSNOR
NORNOR
NOR
NOR
NOR
NORNOR
NORNOR
NORNORNOR
NOR
NOR
NOR
NOR
NOR
NOR
NOR
NORNOR
NOR
NOR
NOR
NOR
NOR
NORNOR
NOR
NORNOR
NORNORNOR
NORNOR
NOR
NOR
NOR
NOR
NOR
NORNORNOR
NOR
NORNOR
NOR
NOR
NOR
NORNOR
NOR
NOR
NOR
NORNORNORNOR
NORNORNOR
NOR
NORNOR
NORNORNORNORNOR
NORNOR
NOR
NORNORNOR
NOR
NOR
NORNOR
NOR
NORNOR
NZL
NZL
NZL
NZL
NZLNZLNZL
NZLNZL
NZL
NZLNZLNZL
NZLNZLNZL
NZL
NZLNZL
NZLNZL
NZL
NZLNZL
NZL
NZL
NZL
NZLNZLNZL
NZL
NZLNZL
NZL
NZL
NZL
NZL
NZL
NZL
NZL
NZL
NZLNZL
NZL
NZL
NZL
NZLNZL
NZLNZL
NZLNZL
NZLNZL
NZL
NZL
NZL
NZL
NZL
NZL
NZL
NZL
NZLNZL
NZLNZL
NZLNZL
NZL
NZLNZL
NZLNZL
NZLNZLNZL
NZL
NZLNZLNZL
NZLNZLNZL
NZL
PAK
PAKPAK
PAKPAK
PAK
PAK
PAK
PAKPAK
PAKPAKPAK
PAK
PAK
PAKPAK
PAK
PAK
PAKPAK
PAKPAK
PAKPAKPAK
PAKPAK
PAK
PAKPAK
PAKPAK
PAK
PAK
PAKPAKPAKPAK
PAK
PAK
PAKPAK
PAK
PAK
PAK
PAK
PAKPAK
PAKPAK
PAK
PAK
PAK
PAK
PAKPAK
PAKPAK
PAKPAK
PAKPAK
PAK
PAKPAKPAK
PAK
PAK
PAKPAKPAKPAKPAKPAK
PAK
PAK
PAKPAK
PAKPAK
PAKPAK
PAKPERPER
PERPER
PERPER
PERPERPER
PERPERPERPER
PERPER
PER
PER
PERPER
PER
PER
PERPER
PER
PER
PER
PER
PERPERPER
PERPERPERPER
PER
PER
PERPER
PER
PER
PER
PERPER
PERPER
PERPER
PER
PER
PER
PERPERPER
PERPER
PERPER
PERPERPER
PERPER
PER
PERPER
PERPERPER
PERPERPER
PER
PER
PER
PER
PERPER
PERPER
PERPER
PERPHLPHLPHL
PHLPHLPHL
PHL
PHLPHL
PHL PHL
PHLPHL
PHLPHLPHL
PHLPHLPHL
PHLPHL
PHL
PHLPHLPHLPHL
PHLPHLPHL
PHLPHLPHL
PHL
PHLPHL PHL PHL
PHL
PHLPHL
PHL
PHL PHL
PHLPHLPHL
PHLPHL
PHLPHL
PHLPHL
PHLPHLPHL
PHLPHLPHL
PHLPHLPHL
PHLPHLPHLPHL
PHL
PHLPHLPHL
PHL
PHLPHL
PHLPHL
PHL
PHL PHLPHL
PHLPHL
PRTPRT
PRT
PRT
PRTPRTPRT
PRTPRTPRT
PRTPRTPRT
PRTPRT
PRTPRT
PRTPRT
PRT
PRTPRT
PRT
PRTPRTPRT
PRTPRTPRT
PRTPRT
PRT
PRTPRTPRT
PRTPRTPRT
PRTPRT
PRT
PRTPRT
PRTPRTPRTPRT
PRTPRTPRT
PRTPRTPRT
PRTPRT
PRT
PRT
PRTPRT
PRT
PRT
PRT
PRT
PRTPRT
PRT
PRTPRTPRT
PRT
PRT
PRTPRT
PRTPRT
PRT
PRT
PRT
PRT
RUSRUSRUS
RUS
RUSRUSRUS
RUSRUS
RUSRUS RUSRUSRUS
RUSRUS
RUSRUS
RUSRUSRUS
RUS RUS
RUS
RUSRUSRUS
RUS
RUS
RUSRUS
RUS
RUS
RUSRUSRUS
RUSRUSRUS RUSRUS
RUSRUS
RUSRUSRUSRUSRUSRUSRUSRUSRUS
RUSRUSRUSRUSRUSRUS RUS
RUSRUSRUS
RUS
RUSRUSRUSRUS
RUSRUS
RUSRUS
RUSRUS
RUSRUSRUS
RUSRUS
RUS
RUSRUS
RUS
RUS RUSRUS
RUS
SWE
SWE
SWE
SWE
SWE
SWE
SWESWE
SWE
SWE
SWESWESWESWE
SWESWE
SWESWE
SWESWESWESWE
SWESWESWE
SWE
SWE
SWESWESWE
SWESWE
SWE
SWE
SWESWESWE
SWE
SWE
SWE
SWESWE
SWESWE
SWESWESWE
SWESWE
SWE
SWESWE
SWESWE
SWESWE
SWESWE
SWESWESWE
SWESWE
SWE
SWE
SWE
SWESWE
SWESWE
SWESWE
SWE
SWESWE
SWE
SWE
SWE
SWESWE
SWE
SWE
SWE
SWE
TUR
TURTUR
TURTURTUR
TURTUR
TUR
TUR
TURTURTUR
TURTURTURTUR
TURTUR
TUR
TURTUR
TURTUR
TUR
TURTURTUR
TURTUR
TURTUR
TURTURTUR
TUR
TURTURTURTUR
TUR
TUR TURTURTUR
TUR
TURTURTUR
TURTUR
TURTUR
TUR
TUR
TUR
TUR
TURTURTURTUR
TURTURTURTUR
TURTUR
TUR
TURTUR
TURTUR
TURTURTUR
TURTUR
TUR
TUR
USA
USA
USA
USA
USA
USAUSAUSA
USA
USAUSA
USAUSA
USA
USA
USAUSAUSA
USAUSAUSAUSA
USA
USAUSAUSA
USA
USAUSAUSAUSA
USA
USAUSA
USAUSA
USA
USA
USAUSA
USAUSAUSA
USA
USAUSAUSA
USAUSA
USA
USA
USA
USA
USAUSAUSAUSAUSAUSA
USAUSA
USAUSAUSA
USAUSA
USAUSA
USA
USA
USAUSAUSA
USAUSAUSA
USA
USAUSA
USAUSAUSAUSA
USAUSA
USAUSA
VENVENVENVENVEN
VENVEN VENVEN VENVENVEN
VENVENVENVEN VENVENVEN VENVENVENVEN
VENVENVEN VENVENVEN VENVENVENVEN
VENVEN VENVEN VEN VENVENVENVENVEN VEN VENVENVEN
VENVEN VENVEN VENVENVEN VENVENVENVENVENVENVENVEN
VEN VENVENVEN
VEN VENVENVENVEN
VEN VENVENVENVENVENVEN
VENVEN
VENVEN VENVEN VEN
VENVENVENVEN
VEN VEN
ZAF
ZAFZAFZAF
ZAFZAFZAF
ZAFZAF
ZAFZAF
ZAF
ZAF
ZAFZAF
ZAF
ZAF
ZAFZAF
ZAFZAF
ZAFZAF
ZAF
ZAFZAFZAF
ZAFZAF
ZAF
ZAFZAF
ZAFZAF
ZAF
ZAFZAFZAFZAF
ZAF
ZAFZAF
ZAF
ZAF
ZAF
ZAF
ZAF
ZAF
ZAF
ZAFZAF
ZAF
ZAF
ZAF
ZAFZAFZAF
ZAF
ZAF
ZAF
ZAF
ZAFZAFZAF
ZAF
ZAFZAF
ZAF
ZAFZAFZAF
ZAFZAF
ZAFZAF
ZAF
ZAF
ZAFZAFZAF
ZAF
ZAF
ZAF
.7.9
1.1
1.3
1.5
Estim
ated
exc
hang
e ra
te e
last
icity
-.5 0 .5Exchange rate shock
Specification 3: REER a la McGuirkExchange rate shock vs. magnitude of demand bias
(b) McGuirk
ARG
ARG
ARG
ARGARG
ARG
ARG
ARG
ARGARGARG
ARGARGARGARG
ARGARG
ARGARG
ARG
ARGARG
ARGARGARG
ARGARG
ARGARG
ARGARG
ARGARGARGARG
ARG
ARG
ARG
ARG
ARG
ARG
ARG
ARG
ARG
ARG
ARG
ARGARG
ARG
ARG
ARG
ARGARG
ARGARGARG
ARG
ARG
ARGARG
ARG
ARG
ARG
ARG
ARG
ARGARG
ARG
ARG
ARG
ARG
ARGARG
ARG
ARGARG
ARGARG
ARG
ARG
ARGAUSAUS
AUS
AUSAUSAUS
AUS
AUS
AUS
AUS
AUSAUS
AUS
AUS
AUSAUS
AUS
AUS
AUS
AUS
AUS
AUS
AUS
AUSAUSAUS
AUSAUS
AUS
AUS
AUSAUS
AUSAUS
AUS
AUS
AUSAUS
AUS
AUS
AUS
AUS
AUSAUS
AUSAUSAUS
AUS
AUS
AUS
AUS
AUS
AUS
AUSAUSAUS
AUS
AUSAUSAUS
AUS
AUS
AUS
AUSAUS
AUS
AUS
AUS
AUSAUS
AUS
AUS
AUS
AUS
AUS
AUSAUSAUS
AUSAUSAUS
AUS
AUS
AUS
AUS
AUS
AUS
AUT
AUT
AUT
AUTAUTAUT
AUTAUT
AUT
AUT
AUT
AUT
AUT
AUTAUTAUT
AUTAUT
AUTAUTAUT
AUT
AUT
AUT
AUT
AUTAUT
AUT
AUT
AUT
AUT
AUT
AUTAUT
AUT
AUT
AUT
AUTAUT
AUTAUT
AUT
AUT
AUTAUTAUT
AUTAUTAUT
AUT
AUT
AUT
AUT
AUTAUTAUT
AUT
AUT
AUT
AUT
AUT
AUT
AUTAUTAUT
AUTAUT
AUT
AUTAUTAUT
AUT
AUTAUT
AUT
AUT
AUTAUT
AUT
AUT
AUT
AUTAUT
AUT
BELBEL
BEL
BEL
BELBELBEL
BEL
BEL
BEL
BELBEL
BELBEL
BEL
BEL
BEL
BEL
BEL
BELBELBELBEL
BELBEL
BEL
BEL
BELBEL
BEL
BEL
BEL
BELBEL
BEL
BEL
BEL
BEL
BEL
BEL
BEL
BEL
BEL
BEL
BEL
BEL
BEL
BEL
BELBEL
BEL
BEL
BEL
BELBEL
BEL
BELBEL
BEL
BEL
BEL
BEL
BEL
BEL
BEL
BELBEL
BEL
BEL
BEL
BEL
BELBEL
BEL
BELBEL
BEL
BEL
BEL
BEL
BEL
BEL
BELBEL
BELBELBEL
BRA
BRABRA
BRABRABRA
BRA
BRA
BRABRABRA
BRA
BRA
BRA
BRA
BRABRA
BRA
BRA
BRA
BRABRABRA
BRA
BRA
BRABRABRA
BRABRA
BRABRA
BRA
BRA
BRABRA
BRA
BRABRABRA
BRA
BRABRABRA
BRABRABRA
BRA
BRABRA
BRA
BRA
BRABRA
BRA
BRA
BRABRA
BRABRA
BRABRA
BRABRABRABRA
BRABRA
BRABRA
BRABRA
BRABRA
BRA
BRABRA
BRA
BRA
BRA
BRABRA
BRABRABRACAN
CAN
CANCAN
CANCAN
CAN
CANCAN
CANCANCANCANCAN
CANCAN
CAN
CAN
CAN
CAN
CAN
CANCAN
CAN
CAN
CAN
CAN
CANCANCANCAN
CANCAN
CAN
CANCAN
CANCANCAN
CAN
CAN
CANCAN
CANCAN
CANCAN
CAN
CAN
CAN
CANCAN
CAN
CANCAN
CANCAN
CAN
CANCAN
CAN
CAN
CANCANCAN
CAN
CAN
CAN
CAN
CANCAN
CAN
CAN
CANCANCAN
CAN
CANCAN
CAN
CANCHECHECHECHECHECHECHECHECHE
CHE
CHE
CHE
CHE
CHE
CHE
CHECHECHECHECHE
CHE
CHE
CHE
CHE
CHECHE
CHE
CHE
CHE
CHE
CHE
CHE
CHECHE
CHE
CHECHE
CHE
CHECHE
CHECHECHE
CHECHE
CHE
CHE
CHE
CHECHE
CHECHE
CHECHE
CHECHE
CHECHECHE
CHE
CHECHE
CHECHE
CHE
CHE
CHE
CHE
CHECHECHE
CHE
CHECHE
CHECHE
CHE
CHE
CHE
CHE
CHECHE
CHE
CHE
CHE
CHE
CHECHE
CHLCHL
CHL
CHLCHL
CHL
CHLCHLCHLCHL
CHL
CHLCHL
CHLCHLCHL
CHL
CHL
CHLCHL
CHL
CHLCHLCHL
CHLCHL
CHL
CHL
CHLCHL
CHL
CHLCHL
CHLCHLCHL
CHLCHLCHL
CHLCHL
CHL
CHL
CHL
CHLCHL
CHL
CHL
CHLCHL
CHL
CHL
CHL
CHLCHLCHL
CHLCHL
CHLCHL
CHLCHLCHLCHL
CHL
CHLCHL
CHL
CHL
CHL
CHL
CHL
CHLCHL
CHL
CHLCHL
CHLCHLCHL
CHLCHL
CHL
CHLCHL
CHL
CHL
CHLCHLCHLCHNCHN
CHN CHN
CHN
CHNCHNCHN
CHNCHN
CHN
CHNCHN
CHN
CHNCHN
CHNCHN
CHNCHN
CHNCHN
CHN
CHN
CHNCHNCHN
CHN
CHN
CHN
CHN
CHNCHN
CHNCHNCHN
CHNCHN
CHN
CHNCHN
CHNCHNCHN
CHNCHNCHN
CHN
CHNCHNCHNCHN
CHNCHN
CHNCHNCHN
CHNCHN CHN
CHNCHNCHN
CHN
CHN
CHN
CHNCHNCHN
CHN
CHNCHNCHN
CHNCHNCHN
CHN
CHNCHN
CHNCHN
CHNCHN
CHN
CHNCHNCHNCHNCHN
CHNCHN
CHN
CHN
COLCOL
COL
COL
COL
COL
COLCOL
COL
COL
COLCOL
COL
COL
COL
COLCOL
COLCOLCOL
COLCOL
COLCOLCOL
COL
COL
COL
COLCOL
COL
COLCOL
COL
COL
COL
COLCOL
COLCOL
COL
COL
COL
COL
COLCOL
COL
COL
COL
COL
COL
COL
COL
COLCOL
COL
COL
COL
COL
COL
COLCOLCOLCOL
COLCOL
COLCOL
COLCOLCOL
COL
COL
COL
COL
COL
COL
COLDEU
DEUDEUDEUDEU
DEU
DEUDEU DEUDEUDEUDEUDEUDEU
DEUDEUDEUDEU
DEUDEU
DEU
DEUDEU
DEUDEU
DEUDEUDEU
DEUDEU
DEUDEU
DEU
DEU
DEUDEUDEU
DEU
DEUDEU
DEU
DEUDEU DEUDEU
DEU
DEU
DEUDEUDEU
DEUDEU
DEUDEU
DEUDEU
DEU
DEU
DEUDEUDEU
DEUDEUDEUDEU
DEU
DEUDEU
DEUDEU
DEUDEU
DEU
DEUDEUDEUDEUDEU
DEUDEU
DEUDEU
DEUDEUDEU
DEU DNK
DNK
DNK
DNK
DNKDNKDNKDNKDNK
DNK
DNKDNK
DNK
DNKDNK
DNK
DNK
DNK
DNK
DNK
DNKDNKDNK
DNKDNK
DNK
DNK
DNK
DNK
DNK
DNK
DNK
DNK
DNKDNK
DNK
DNK
DNKDNK
DNK
DNKDNK
DNKDNK
DNK
DNK
DNK
DNKDNKDNKDNK
DNK
DNK
DNKDNK
DNKDNK
DNK
DNKDNKDNK
DNK
DNK
DNKDNK
DNKDNK
DNK
DNKDNKDNKDNK
DNK
DNK
DNK
DNK
DNK
DNK
DZA
DZA
DZA
DZA
DZA
DZA
DZA
DZADZA
DZADZA
DZA
DZA
DZA
DZA
DZADZA
DZA
DZA
DZA
DZA
DZA
DZA
DZA
DZA
DZA
DZA
DZA
DZA
DZA
DZADZA
DZA
DZA
DZA
DZADZA
DZA
DZADZA
DZA
DZA
DZA
DZA
DZADZA
DZA
DZA
DZA
DZA
DZA
DZA
DZA
DZADZA
DZA
DZA
DZA
DZA
DZA
DZADZA
DZA
DZADZA
DZADZA
DZA
DZA
DZA
DZADZA
DZA
DZA
DZA
DZA
DZA
DZAEGY
EGYEGY
EGY
EGY
EGY
EGYEGY
EGY
EGYEGYEGYEGY
EGY
EGY
EGYEGYEGY
EGYEGY
EGY
EGYEGY
EGY
EGY
EGYEGY
EGY
EGY
EGY
EGY
EGY
EGY
EGY
EGY
EGY
EGYEGY
EGYEGY
EGYEGY
EGY
EGY
EGY
EGY
EGYEGY
EGY
EGY
EGYEGYEGY
EGY
EGYEGY
EGY
EGY
EGYEGY
EGY
EGY
EGY
EGY
EGY
EGYEGY
EGYEGY
EGYEGY
EGY
EGY
EGY
EGY
EGY
EGYEGY
EGY
EGYEGY
EGYEGY
EGYEGY
EGY
EGYEGY
ESPESP
ESPESP
ESPESPESPESP
ESP
ESP
ESPESP
ESP
ESP
ESP
ESP
ESP
ESPESP
ESP
ESPESP
ESP
ESP
ESP
ESP
ESP
ESPESP
ESP
ESPESPESPESPESP
ESPESPESPESPESP
ESPESP
ESP
ESPESP
ESP
ESPESP
ESPESPESP
ESPESPESP
ESP
ESPESP
ESP
ESP
ESP
ESPESPESPESP
ESP
ESP
ESPESP
ESP
ESP
ESP
ESPESPESP
ESP
ESPESP
ESP
ESPESP
ESPESP
ESPESPESP
ESP
ESPESPESPESPESP
ESP
ESP FINFIN
FIN
FINFINFINFIN
FINFIN
FIN
FINFIN
FINFIN
FIN
FIN
FINFIN
FIN
FIN
FIN
FIN
FIN
FINFINFIN
FINFIN
FIN
FINFIN
FIN
FINFIN
FIN
FINFIN
FIN
FINFIN
FINFIN
FINFIN
FIN FINFIN
FINFINFIN
FIN
FINFIN
FIN
FIN
FINFIN
FINFINFIN
FIN
FINFIN
FINFINFINFINFIN
FINFIN FINFINFINFIN
FINFINFIN
FIN
FINFINFIN
FIN
FINFINFIN
FIN
FRA
FRAFRA
FRAFRAFRA
FRA
FRA
FRA
FRA
FRAFRAFRA
FRA
FRAFRA
FRA
FRAFRA
FRA
FRAFRA
FRA
FRA
FRA
FRA
FRAFRAFRA
FRA
FRA
FRAFRA
FRA
FRAFRA
FRAFRA
FRA
FRA
FRA
FRA
FRA
FRA
FRAFRA
FRA
FRA
FRAFRA
FRAFRA
FRA
FRAFRAFRA
FRAFRAFRA
FRAFRA
FRAFRAFRA
FRA
FRAFRA
FRAFRA
FRA
FRA
FRAFRAFRA
FRA
FRA
FRAFRAFRA
FRA
FRAFRA
FRA
FRA
FRAFRAFRAFRA
FRAFRA
FRA
FRAFRAFRA
FRAGBR
GBR
GBR
GBR
GBR
GBRGBR
GBR
GBRGBR
GBR
GBR
GBR
GBRGBRGBR
GBR
GBR
GBRGBRGBR
GBRGBR
GBRGBRGBR
GBRGBRGBR
GBRGBRGBRGBR
GBRGBR
GBR
GBR
GBR
GBR
GBR
GBRGBRGBR
GBRGBRGBR
GBR
GBR
GBRGBRGBRGBR
GBR
GBRGBR
GBRGBR
GBR
GBR
GBRGBRGBR
GBR
GBRGBR
GBRGBR
GBR
GBR
GBR
GBR
GBRGBR
GBR
GBR
GBR
GBR
GBR
GBR
GBRGBRGBRGBRGBR
GBRGBR
GBR
GBR
GBRGRC
GRCGRCGRC
GRCGRC
GRC
GRCGRC
GRCGRC
GRC
GRC
GRC
GRC
GRC
GRC
GRC
GRC
GRC
GRC
GRC
GRC
GRCGRC
GRC
GRCGRC
GRCGRC
GRC
GRC
GRC
GRC
GRC
GRC
GRC
GRC
GRCGRC
GRC
GRC
GRCGRC
GRC
GRCGRC
GRC
GRCGRC
GRCGRC
GRC
GRC
GRC
GRC
GRCGRCGRC
GRC
GRC
GRC
GRC
GRC
GRCGRCGRC
GRCGRC
GRC
GRC
GRCGRC
GRC
GRC
GRC
GRCGRCGRCGRC
INDIND
INDINDINDIND
IND
INDIND
INDIND
IND
INDINDIND
INDINDINDIND
IND
IND
IND
IND
IND
INDIND
IND
IND
IND
IND
INDIND
IND
INDIND
IND
INDIND
INDIND
INDIND
IND
INDINDIND
IND
INDIND
IND
IND
IND
IND
IND
IND
IND
INDIND
IND
INDINDIND
IND
IND
IND
IND
IND
IND
IND
INDIND
INDIND
IND
INDINDIND
IND
INDIND
IND
IND
IND
INDINDIRL
IRL
IRLIRLIRLIRLIRL
IRLIRL
IRL IRLIRLIRL
IRLIRL
IRLIRLIRLIRL IRL
IRL IRL
IRLIRLIRL IRL IRLIRL
IRL
IRL
IRLIRLIRL
IRLIRL
IRL IRLIRL
IRL
IRLIRL
IRLIRLIRL
IRLIRL IRL IRL
IRLIRLIRL
IRLIRL
IRLIRL
IRL
IRLIRL
IRLIRL IRLIRL
IRLIRL
IRLIRL
IRLIRL
IRLIRLIRL
IRL IRLIRL
IRL
IRL
IRLIRL
IRL IRL
IRL
IRLIRL
IRL
IRLIRL
ISR
ISR
ISR
ISRISR
ISRISR
ISR
ISR
ISR
ISRISRISR
ISR
ISR
ISR
ISR
ISR
ISRISRISR
ISRISR
ISRISRISRISR
ISR
ISR
ISR
ISRISRISRISRISR
ISR
ISRISRISR
ISR
ISR
ISRISRISR
ISR
ISR
ISR
ISRISR
ISRISR
ISR
ISR
ISRISR
ISRISR
ISR
ISRISR
ISR
ISR
ISRISR
ISR
ISR
ISRISR
ISRISRISR
ISR
ISR
ISR
ISR
ISR
ISR
ISR
ISRISR
ISR
ISRISR
ISR
ISRITA
ITA
ITAITAITA
ITA
ITAITA
ITA
ITA
ITAITA
ITA
ITA
ITA
ITA
ITA
ITA
ITAITA
ITA
ITAITAITA
ITA
ITAITA
ITA
ITA
ITA
ITA
ITAITA
ITA
ITAITA
ITAITAITA
ITAITA
ITAITA
ITA
ITA
ITA
ITAITA
ITAITA
ITA ITA
ITA
ITA
ITA
ITA
ITAITAITA
ITA
ITA
ITAITA
ITA
ITAITA
ITA
ITAITAITA
ITAITA
ITAITA
ITAITAITA
ITA
ITAITA
ITA
ITA
ITAJPN
JPN
JPNJPN
JPN
JPNJPN
JPNJPN
JPN
JPNJPN JPN
JPN
JPNJPNJPN
JPN
JPNJPN
JPN
JPNJPNJPN
JPNJPN
JPN
JPN
JPNJPNJPN
JPNJPN JPNJPNJPN
JPN
JPNJPNJPNJPNJPNJPNJPN
JPNJPN
JPNJPN
JPN
JPNJPNJPN
JPNJPNJPN
JPN
JPN
JPNJPN
JPNJPN
JPNJPN
JPN
JPNJPN
JPN
JPNJPNJPN
JPNJPN
JPNJPNJPNJPNJPN
JPNJPN
JPN
JPN JPNJPNJPNJPN
JPNKOR
KORKORKORKOR
KORKOR
KORKOR
KORKORKOR
KOR
KOR
KORKORKORKORKOR
KOR
KORKOR
KOR
KORKORKOR
KORKOR
KORKOR
KOR
KOR KOR
KOR
KORKOR
KORKOR
KOR
KOR
KORKOR
KOR KOR KOR
KORKOR
KOR
KORKOR
KOR
KOR
KORKORKORKORKOR
KOR
KORKOR
KORKOR
KOR
KORKOR
KOR
KORKOR
KOR
KOR
KORKOR
KORKOR
KOR
KORKOR
KOR
KORKOR
KOR
KORKOR
KORKOR
KORKORKOR
MEX
MEXMEX
MEXMEX
MEXMEX
MEX
MEXMEX
MEX
MEX
MEXMEX
MEX
MEX
MEX
MEX
MEX
MEX
MEXMEX
MEX
MEXMEX
MEX
MEX
MEX
MEX
MEXMEX
MEXMEXMEX
MEXMEX
MEX
MEX
MEXMEX
MEX
MEX
MEX
MEXMEX
MEX
MEXMEXMEXMEXMEXMEXMEX
MEX
MEX
MEX
MEX
MEXMEX
MEX
MEX
MEXMEX
MEX
MEX
MEX
MEX
MEX
MEXMEX
MEX
MEX
MEX
MEX
MEX
MYS
MYS
MYSMYS
MYSMYS
MYS
MYSMYSMYS
MYS
MYSMYS
MYS
MYS
MYS
MYS
MYSMYSMYSMYS
MYS
MYS
MYSMYSMYS
MYSMYSMYS
MYSMYS
MYSMYS
MYSMYSMYS
MYS
MYSMYSMYS
MYS
MYSMYS
MYS
MYS
MYSMYS
MYSMYS
MYS
MYSMYSMYS
MYSMYS
MYSMYSMYS
MYS
MYS
MYSMYSMYSMYS
MYSMYS
MYS
MYSMYSMYSMYSMYSMYS
MYS
MYS
MYSMYSMYS
MYSMYSMYS
MYS
MYS
MYSMYS
MYS
MYS
MYSMYS
MYS
MYSNOR
NOR
NOR
NOR
NOR
NOR
NOR
NOR
NORNOR
NORNOR
NOR
NOR
NOR
NOR
NOR
NOR
NOR
NOR
NORNOR
NOR
NOR
NOR
NOR
NOR
NOR
NOR
NOR
NORNOR
NOR
NORNOR
NORNOR
NOR
NOR
NOR
NOR
NOR
NOR
NORNORNOR
NOR
NOR
NOR
NOR
NOR
NORNOR
NOR
NOR
NOR
NORNORNOR
NOR
NORNOR
NORNOR
NORNOR
NORNORNORNOR
NOR
NORNOR
NOR
NORNORNOR
NOR
NOR
NORNOR
NOR
NORNOR
NZL
NZL
NZL
NZL
NZLNZLNZL
NZLNZL
NZL
NZLNZLNZL
NZLNZL
NZL
NZL
NZLNZL
NZLNZL
NZL
NZLNZL
NZL
NZL
NZL
NZLNZLNZL
NZL
NZLNZL
NZL
NZL
NZL
NZL
NZL
NZL
NZL
NZL
NZLNZL
NZL
NZL
NZL
NZL
NZL
NZLNZL
NZLNZL
NZLNZL
NZL
NZL
NZL
NZL
NZL
NZL
NZL
NZL
NZL
NZL
NZL
NZLNZLNZL
NZL
NZL
NZL
NZLNZL
NZLNZLNZL
NZL
NZLNZLNZL
NZL
NZLNZL
NZL
PAK
PAK
PAK
PAK
PAKPAK
PAK
PAK
PAKPAK
PAKPAKPAK
PAK
PAK
PAK
PAK
PAK
PAK
PAKPAK
PAKPAK
PAKPAK
PAK
PAKPAK
PAK
PAKPAK
PAKPAK
PAK
PAK
PAKPAKPAKPAK
PAK
PAK
PAKPAK
PAK
PAK
PAK
PAK
PAK
PAKPAK
PAK
PAK
PAK
PAK
PAK
PAKPAK
PAK
PAKPAK
PAKPAK
PAK
PAK
PAK
PAKPAK
PAK
PAK
PAKPAK
PAKPAKPAK
PAK
PAK
PAK
PAKPAK
PAK
PAKPAK
PAKPAKPER
PER
PERPER
PERPER
PERPER
PER
PERPERPER
PERPER
PER
PER
PER
PER
PER
PER
PER
PERPER
PER
PER
PER
PER
PERPER
PERPER
PERPERPER
PER
PER
PERPER
PER
PER
PER
PERPER
PER
PERPER
PER
PER
PER
PER
PER
PERPER
PERPER
PERPER
PERPERPER
PER
PER
PER
PER
PER
PERPERPER
PERPERPER
PER
PER
PER
PER
PERPER
PERPER
PER
PER
PERPHLPHLPHL
PHLPHLPHL
PHL
PHL
PHL
PHLPHL
PHLPHL
PHLPHL
PHLPHLPHL
PHLPHL
PHL
PHL
PHLPHL
PHLPHL
PHLPHL
PHL
PHLPHLPHL
PHL
PHLPHL
PHLPHL
PHL
PHLPHL
PHL
PHLPHL
PHLPHLPHL
PHLPHL
PHLPHL
PHL
PHLPHL
PHLPHL
PHLPHL
PHLPHLPHL
PHLPHL
PHLPHLPHL
PHL
PHLPHLPHL
PHL
PHL
PHL
PHLPHL
PHL
PHL PHLPHL
PHLPHL
PRTPRT
PRT
PRT
PRTPRTPRT
PRTPRTPRT
PRTPRTPRT
PRTPRT
PRTPRT
PRT
PRT
PRT
PRTPRT
PRT
PRTPRTPRT
PRTPRTPRT
PRTPRT
PRT
PRT
PRTPRTPRT
PRTPRTPRT
PRT
PRT
PRTPRT
PRTPRTPRT
PRTPRT
PRTPRT
PRTPRTPRT
PRTPRT
PRT
PRT
PRTPRT
PRT
PRT
PRT
PRT
PRT
PRT
PRT
PRTPRTPRT
PRT
PRT
PRTPRT
PRTPRT
PRT
PRT
PRT
PRT
RUS
RUSRUSRUS
RUS
RUSRUS
RUSRUS
RUSRUSRUSRUS
RUS
RUSRUS
RUS
RUS
RUSRUSRUS
RUSRUS
RUS
RUSRUSRUS
RUS
RUS
RUSRUS
RUS
RUS
RUS RUS
RUS
RUSRUSRUSRUS
RUS
RUSRUS
RUSRUSRUSRUSRUSRUS
RUSRUS
RUSRUSRUS
RUSRUSRUSRUS
RUS
RUSRUSRUS
RUS
RUSRUSRUSRUS
RUSRUS
RUS
RUS
RUS
RUSRUS
RUSRUS
RUSRUS
RUS
RUSRUS
RUS
RUSRUS
RUS
RUS
SWE
SWE
SWE
SWE
SWE
SWE
SWESWE
SWE
SWE
SWESWESWESWE
SWESWE
SWESWE
SWESWE
SWESWESWE
SWE
SWE
SWE
SWE
SWESWESWE
SWESWE
SWE
SWE
SWESWESWE
SWE
SWE
SWE
SWESWE
SWESWE
SWESWE
SWE
SWESWE
SWE
SWESWE
SWESWE
SWESWE
SWESWE
SWESWE
SWE
SWESWE
SWE
SWE
SWE
SWE
SWE
SWE
SWE
SWE
SWE
SWE
SWESWE
SWE
SWE
SWE
SWESWE
SWE
SWE
SWE
SWE
TUR
TUR
TURTUR
TURTUR
TUR
TURTUR
TUR
TURTUR
TURTURTUR
TURTUR
TURTUR
TUR
TURTUR
TURTUR
TUR
TURTURTUR
TURTUR
TURTUR
TURTURTUR
TUR
TURTURTURTUR
TUR
TURTUR
TURTUR
TUR
TURTURTUR
TURTUR
TURTUR
TUR
TUR
TUR
TUR
TURTURTUR
TURTUR
TURTURTUR
TUR
TUR
TUR
TUR
TUR
TURTUR
TURTUR
TUR
TURTUR
TUR
TUR
USA
USA
USA
USA
USA
USAUSAUSA
USA
USA
USAUSAUSA
USA
USA
USA
USAUSA
USAUSAUSA
USA
USA
USAUSAUSA
USA
USAUSAUSAUSA
USA
USAUSA
USAUSA
USA
USA
USAUSA
USAUSAUSA
USA
USAUSAUSA
USA
USA
USA
USA
USA
USA
USAUSAUSAUSAUSAUSA
USA
USAUSAUSA
USAUSA
USA
USAUSA
USA
USA
USAUSAUSA
USAUSAUSA
USA
USA
USA
USAUSAUSAUSA
USAUSA
USAUSA
VENVENVEN
VENVENVEN
VEN VENVEN VENVENVEN
VENVENVENVENVEN
VEN VENVENVENVENVEN
VENVENVEN VENVENVEN VENVEN
VENVENVEN
VEN VENVEN VEN VENVENVENVENVEN VEN VENVENVENVENVEN VENVEN VENVENVEN VENVENVENVENVENVENVEN
VENVEN VENVEN
VEN
VEN VENVENVENVEN
VEN VENVENVENVENVENVEN
VENVEN
VENVEN
VENVEN VENVEN
VENVENVENVEN VEN
ZAF
ZAFZAF
ZAF
ZAFZAFZAF
ZAFZAF
ZAFZAF
ZAF
ZAF
ZAF
ZAF
ZAF
ZAF
ZAFZAF
ZAFZAF
ZAFZAF
ZAF
ZAFZAFZAF
ZAF
ZAF
ZAF
ZAF
ZAF
ZAFZAF
ZAF
ZAFZAFZAFZAF
ZAF
ZAFZAF
ZAF
ZAF
ZAF
ZAF
ZAF
ZAF
ZAF
ZAFZAF
ZAF
ZAF
ZAF
ZAFZAF
ZAF
ZAF
ZAF
ZAF
ZAF
ZAFZAFZAF
ZAF
ZAFZAF
ZAF
ZAFZAFZAF
ZAF
ZAF
ZAFZAF
ZAF
ZAF
ZAFZAFZAF
ZAF
ZAF
ZAF
.81
1.2
1.4
Estim
ated
exc
hang
e ra
te e
last
icity
-.6 -.4 -.2 0 .2Exchange rate shock
Specification 4: dln approximationExchange rate shock vs. magnitude of demand bias
(c) Log-approximation
ARG
ARG
ARG
ARGARG
ARG
ARG
ARG
ARGARGARG
ARGARGARGARG
ARGARGARG
ARG
ARG
ARGARG
ARGARGARGARG
ARGARG
ARGARGARG
ARGARGARGARG
ARG
ARG
ARGARG
ARG
ARG
ARG
ARG
ARG
ARG
ARG
ARGARG
ARG
ARG
ARG
ARGARG
ARGARGARG
ARG
ARG
ARGARG
ARG
ARG
ARGARG
ARGARGARG
ARG
ARG
ARG
ARG
ARGARG
ARGARG
ARG
ARGARG
ARG
ARG
ARGAUSAUS
AUS
AUSAUSAUS
AUS
AUS
AUS
AUS
AUSAUS
AUS
AUSAUSAUS
AUS
AUS
AUS
AUS
AUS
AUSAUS
AUSAUSAUS
AUSAUS
AUS
AUSAUS
AUSAUSAUS
AUS
AUS
AUSAUS
AUS
AUS
AUS
AUS
AUSAUS
AUSAUSAUS
AUS
AUS
AUS
AUS
AUS
AUS
AUSAUSAUS
AUS
AUSAUSAUSAUS
AUSAUS
AUSAUS
AUS
AUSAUS
AUSAUS
AUS
AUSAUS
AUS
AUS
AUSAUSAUSAUSAUSAUS
AUS
AUS
AUS
AUSAUS
AUS
AUT
AUT
AUT
AUTAUTAUT
AUTAUT
AUT
AUT
AUT
AUT
AUT
AUTAUTAUT
AUTAUT
AUTAUTAUT
AUT
AUT
AUT
AUTAUTAUT
AUTAUT
AUT
AUT
AUT
AUTAUT
AUT
AUT
AUT
AUTAUT
AUTAUT
AUT
AUT
AUTAUTAUT
AUTAUTAUT
AUT
AUT
AUTAUT
AUTAUTAUTAUT
AUT
AUT
AUT
AUT
AUT
AUTAUTAUT
AUTAUT
AUT
AUTAUTAUT
AUTAUT
AUTAUT
AUT
AUTAUT
AUT
AUT
AUT
AUTAUTAUT
BELBEL
BEL
BEL
BELBELBEL
BEL
BEL
BEL
BELBEL
BELBEL
BEL
BEL
BEL
BEL
BELBEL
BELBELBEL
BELBEL
BEL
BEL
BELBEL
BEL
BEL
BEL
BELBEL
BEL
BEL
BEL
BEL
BEL
BEL
BEL
BEL
BEL
BEL
BEL
BELBEL
BEL
BELBEL
BEL
BELBEL
BELBEL
BEL
BELBEL
BELBEL
BELBEL
BEL
BEL
BEL
BELBEL
BEL
BEL
BELBEL
BELBELBEL
BELBEL
BELBEL
BEL
BEL
BEL
BEL
BELBEL
BELBELBEL
BRA
BRABRA
BRABRABRA
BRA
BRA
BRABRABRA
BRA
BRA
BRA
BRA
BRABRA
BRA
BRA
BRA
BRABRABRA
BRA
BRA
BRABRABRABRABRA
BRABRA
BRA
BRA
BRABRA
BRA
BRABRABRABRA
BRABRABRA
BRABRABRA
BRA
BRABRA
BRA
BRABRA
BRA
BRA
BRA
BRABRA
BRABRABRA
BRABRABRA
BRABRABRA
BRABRA
BRABRA BRA BRABRA
BRA
BRABRABRA
BRA
BRA
BRABRA
BRABRABRACAN
CAN
CANCAN
CANCAN
CAN
CANCAN
CANCANCANCANCANCAN
CAN
CAN
CAN
CANCAN
CAN
CANCAN
CAN
CAN
CAN
CAN
CANCANCANCAN
CANCAN
CAN
CANCAN
CANCANCAN
CAN
CAN
CANCAN
CANCAN
CANCAN
CANCAN
CAN
CANCAN
CANCAN
CAN
CANCAN
CAN
CANCAN
CAN
CAN
CANCANCAN
CAN
CAN
CAN
CAN
CANCAN
CAN
CAN
CANCANCAN
CAN
CANCAN
CANCANCHECHECHECHECHECHECHECHECHE
CHE
CHECHE
CHE
CHE
CHE
CHECHECHECHECHE
CHE
CHE
CHE
CHECHECHE
CHE
CHE
CHE
CHECHE
CHECHECHE
CHE
CHECHE
CHE
CHECHECHE
CHECHECHECHE
CHE
CHE
CHE
CHECHE
CHECHECHE
CHE
CHECHE
CHECHECHE
CHECHECHE
CHECHE
CHE
CHE
CHE
CHECHECHECHE
CHE
CHECHE
CHECHE
CHE
CHE
CHE
CHE
CHECHE
CHE
CHE
CHE
CHE
CHECHE
CHLCHLCHL
CHLCHL
CHL
CHLCHLCHLCHL
CHLCHL
CHLCHLCHL
CHL
CHL
CHL
CHLCHL
CHL
CHLCHLCHL
CHLCHL
CHL
CHL
CHLCHL
CHL
CHLCHL
CHLCHLCHLCHL
CHLCHLCHL
CHLCHL
CHL
CHL
CHLCHL
CHL
CHL
CHLCHL
CHL
CHL
CHL
CHLCHLCHL
CHLCHL
CHLCHL
CHLCHLCHLCHL
CHL
CHLCHL
CHL
CHL
CHL
CHL
CHLCHL
CHL
CHL
CHLCHLCHLCHL
CHLCHLCHL
CHL
CHLCHL
CHL
CHL
CHLCHLCHLCHNCHN
CHNCHNCHN
CHNCHNCHN
CHNCHN
CHN
CHNCHN
CHN
CHNCHN
CHNCHN
CHNCHN
CHNCHNCHN
CHN
CHNCHNCHN
CHN
CHN
CHN
CHNCHN CHN CHNCHNCHN
CHNCHN
CHN
CHNCHN
CHNCHNCHN CHNCHNCHN
CHN
CHNCHNCHNCHN
CHNCHN
CHNCHNCHNCHN
CHNCHN CHNCHNCHN
CHNCHN
CHN
CHNCHNCHN
CHNCHNCHN CHN CHNCHNCHN
CHN
CHNCHN
CHNCHN
CHNCHN
CHN
CHNCHN CHNCHNCHNCHNCHN
CHNCHN
COLCOL
COLCOL
COL
COL
COLCOL
COL
COL
COLCOL
COL
COL
COL
COLCOL
COLCOLCOL
COLCOL
COLCOLCOL
COL
COL
COL
COLCOL
COL
COLCOL
COL
COL
COL
COLCOL
COLCOL
COL
COL
COL
COL
COLCOL
COL
COL
COL
COL
COL
COL
COLCOL
COLCOL
COL
COL
COL
COL
COLCOLCOLCOL
COLCOL
COLCOL
COLCOLCOL
COL
COLCOL
COL
COL
COL
COLDEU
DEUDEUDEUDEU
DEU
DEUDEUDEUDEUDEUDEUDEUDEU
DEUDEUDEUDEU
DEUDEU
DEU
DEUDEU
DEU DEUDEU
DEUDEUDEU
DEUDEU
DEUDEU
DEU
DEUDEUDEU
DEU
DEUDEU
DEU
DEUDEUDEUDEU
DEU
DEU
DEUDEU DEUDEU
DEU
DEUDEU
DEUDEU
DEU
DEUDEUDEU
DEUDEUDEUDEU
DEUDEU
DEUDEU
DEUDEUDEU
DEU
DEU
DEUDEUDEUDEUDEU
DEUDEUDEU
DEUDEU
DEUDEUDEU DNK
DNK
DNK
DNK
DNKDNKDNKDNKDNK
DNK
DNKDNKDNK
DNKDNK
DNKDNK
DNKDNK
DNK
DNKDNKDNK
DNKDNK
DNK
DNKDNK
DNK
DNK
DNK
DNK
DNK
DNKDNK
DNK
DNK
DNKDNK
DNKDNK
DNK
DNKDNK
DNKDNK
DNK
DNKDNKDNKDNK
DNK
DNK
DNKDNK
DNKDNK
DNK
DNKDNKDNK
DNK
DNK
DNKDNK
DNKDNK
DNK
DNKDNKDNKDNK
DNK
DNK
DNK
DNK
DNK
DNK
DZA
DZA
DZA
DZADZA
DZA
DZA
DZADZA
DZADZA
DZA
DZA
DZA
DZA
DZADZA
DZA
DZA
DZA
DZA
DZA
DZA
DZA
DZADZA
DZA
DZA
DZA
DZA
DZADZA
DZA
DZA
DZA
DZADZA
DZA
DZADZA
DZA
DZA
DZA
DZA
DZADZA
DZA
DZA
DZA
DZA
DZA
DZA
DZA
DZADZA
DZADZA
DZA
DZA
DZA
DZADZA
DZA
DZADZA
DZADZA
DZA
DZA
DZA
DZADZA
DZA
DZA
DZADZA
DZA
DZAEGY
EGYEGY
EGY
EGY
EGY
EGYEGY
EGY
EGYEGYEGYEGY
EGY
EGYEGY
EGYEGY
EGYEGY
EGY
EGYEGY
EGY
EGYEGY
EGYEGY
EGY
EGY
EGY
EGY
EGY
EGY
EGY
EGY
EGYEGY
EGYEGY
EGYEGYEGY
EGY
EGYEGY
EGYEGY
EGY
EGY
EGYEGYEGY
EGYEGYEGY
EGY
EGY
EGYEGY
EGY
EGY
EGY
EGY
EGY
EGYEGY
EGYEGYEGY
EGY
EGYEGY
EGY
EGYEGY
EGYEGY
EGY
EGYEGY
EGYEGYEGY
EGY
EGY
EGYEGY
ESPESP
ESPESP
ESPESPESPESP
ESP
ESPESPESP
ESP
ESP
ESP
ESP
ESP
ESPESPESP
ESPESP
ESPESP
ESPESP
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.7.9
1.1
1.3
1.5
Estim
ated
exc
hang
e ra
te e
last
icity
-.5 0 .5Exchange rate shock
Specification 5: Alternative weightsExchange rate shock vs. magnitude of demand bias
(d) Alternative weights
Figure 3: GETI: Relationship between exchange rate shock and the bias in the demand elasticity.
20
Table 3: GETI simulated elasticities of country-specific random exchange rate shocks, stochastic trade costsand θ = −4.
Baseline GM mistake REER McGuirk d ln approx. Alternative("ideal-REER") ("real-REER") weights
(1) (2) (3) (4) (5)
Exchange rateMean -4 -3.951 -4.022 -4.041 -3.997Bias 0 .049 .022 .041 .003Std dev. 0 .141 .171 .166 .178MSE 1/2 0 .149 .173 .171 .178
Foreign demandMean 1 1.28 1.111 1.092 1.192Bias 0 .28 .111 .092 .192Std dev. 0 .28 .247 .262 .335MSE 1/2 0 .396 .270 .278 .386
Notes: The sample consists of 39 countries and each country receives 100 random exchange rate and trade cost shocks.The total number of estimated exchange rate and demand elasticities is 3900 for each of the 5 different specifications.The top cell labeled "Mean" reports the sample mean of the respective estimates for each type of elasticity. The rowslabeled "Bias" give the estimated bias, where est. bias = sample mean - true value. Rows labeled "Std Dev." give thesample standard deviation of the 3900 point estimates. Rows labeled "MSE1/2" give the square root of the estimatedmean squared error (MSE), where estimated MSE = (est. bias)2 + (std dev)2.
4.3 Monte-Carlo with stochastic trade costs
Up until now, our simulations are based on the assumption that the structural gravity equation is thetrue data-generating process for bilateral trade flows. To allow for the fact that the gravity equationdoes not perfectly explain bilateral trade flows, we run a Monte Carlo exercise and assume, as inHead and Mayer (2014), that bilateral trade flows change due to a stochastic term ηni in the tradecost function:
φni = exp(− ln Distni)ηni, (23)
where Distni is the distance between importer n and exporter i. ηni is a log-normal random termand the only stochastic term in the simulation since GDP and distance are all set by actual data. Wecalibrate the variance of ln(ηni) to replicate the root mean squared error of the least squares dummyvariables (LSDV) regression on real data. We use the method of Dekle et al. (2007) and solve themodel in changes. Based on actual data in trade flows and incomes, we first simulate changes inthe trade costs with a random shock ηni, i.e. τni = ηni, and then calculate the changes in wages, theprices for intermediate goods and the aggregate price indexes resulting from the random exchangerate shock.
Table 3 reports the results. Introducing stochastic trade costs increases the bias and the esti-mation error. The MSE significantly increases for the point estimates of the exchange rate and the
21
demand elasticities. Interestingly, the bias in the demand elasticity becomes more pronounced thanin the exchange rate elasticity. Across specifications, the average magnitude of the bias is close to 20percent for the demand elasticity, whereas it is close to 1 percent for the exchange rate elasticity. Thespecification with the lowest MSE is the log approximation in column (4), suggesting that deflatingthe changes in foreign demand by changes in the aggregate price index is important to reduce thebias in the demand elasticity. These simulation results suggest that with the ideal-REER approach itis possible to estimate the response of aggregate exports to exchange rate changes without bias evenif the data-generating process does not fully adhere to structural gravity.
5 Exchange rate pass-through and currency denomination
We derived our ideal-REER regression specification under two important assumptions. First, markupsdo not vary with the exchange rate. Second, prices are set in an international currency. In this section,we relax these assumptions and discuss alternative estimation methods based on different pricing as-sumptions.
One way to change the exporter’s price response to exchange rates is to follow Anderson et al.(2016) and assume an exogenous pass-through coefficient $in. The pass-through coefficient $in cap-tures the exporter’s price adjustment following a variation in the exchange rate, for example, due tochanges in the markup or price rigidities in the invoicing currency. The coefficient is defined on theunit interval 0 < $in < 1. If the pass-through is complete, the exporter will pass on the entire bilat-eral exchange rate variation to the importer and $in = 0. If the export price is fixed in the destinationcurrency and the exporter absorbs all of the exchange rate variation by changing the markup, thepass-through coefficient equals one, $in = 1. Given this definition, we can write the change in theexport price denominated in importer n’s currency as follows:
PEi =
(ri
rnPii
)1−$in
However, if the pass-through coefficient varies at the bilateral level, we will not be able to iden-tify all parameters at the aggregate level:
ln Ei = ln ∑n 6=i
ωni
((ri
rnPii
)1−$in
P−1n
)−θ
Xn
because the number of parameters to estimate is larger than the number of export equations.Instead, we rely on the dominant currency paradigm (DCP, see Casas et al. (2017)) and assume
that exporter and importer prices are fixed in the dominant (international) currency. In this case,the pass-through coefficient depends only on the exchange rate changes vis-à-vis the internationalcurrency ($in = ρiρn). As a result, we can write the bilateral exchange rate as a product of both the
22
exporter exchange rate and the importer exchange rate to the international currency and neglect theco-variance between the two. Reducing the dimensionality further by assuming a common pass-through coefficient, we can write the DCP export equation as follows:
ln Ei = βREER ln(riPii
)+ βx ln ∑
n 6=iωni
Xn(rnPn
)βREER, (24)
where the estimated exchange rate elasticity represents the product of the trade elasticity and theexchange rate pass-through coefficient (ρ), i.e., βREER = θ(1− ρ), for both the exporter-specific andthe importer-specific components. Introducing incomplete pass-through reduces the effect of theexchange rate but leaves the overall functional form unchanged compared with the baseline specifi-cation in equation 7. The lower exchange rate elasticity implies a reduction in the magnitude of theestimation biases in standard REER specifications discussed above. Both the qualitative results andthe country-specific biases plotted in figures 1 to 3 remain the same.
An alternative pricing assumption is that exporters set their prices in the producer’s currency(Producer Currency Pricing, or PCP) and absorb part of the changes in marginal costs by the com-mon pass-through coefficient ρ. In this case, we cannot split the bilateral exchange rate into anexporter/importer component because the importer-specific component depends on the exporter’sprice reaction following an exchange rate shock. The resulting exporter equation is a function ofthe change in producer prices in the exporter’s currency and a weighted average of foreign demanddeflated by the price index converted into the exporter’s currency:
ln Ei = βREER ln(
Pii)+ βx ln ∑
n 6=iωni
((ri
rn
)1−$
P−1n
)βREER
Xn (25)
The estimated exchange rate elasticity is the same for the exporter- and importer-specific com-ponents only if exchange rate pass-through is complete, i.e., $ = 0. If exchange rate pass-throughis incomplete ($ > 0), the importer-specific component depends on the exporter’s price reactionfollowing an exchange rate shock and the estimated exchange rate elasticity βREER will be biased.17
Finally, the third common pricing assumption is that exporters set their prices in the destina-tion’s currency (Local Currency Pricing, or LCP). Under LCP, exporters absorb the bilateral exchangerate variation and the pass-through on import prices is zero. In this case, the exchange rate shockdoes not affect prices, demand and exports. As a result, there is no counterfactual variation.
Overall, consistent aggregation under incomplete pass-through is only possible when pricesare set in an international currency as postulated by the dominant currency paradigm. If pricesare set in the producer’s currency (producer currency pricing (PCP)) or in the local currency (localcurrency pricing (LCP)), the pass-through depends on the bilateral exchange rate, and estimationof the aggregate elasticities without bias is only possible if pass-through is complete. Next, we test
17Our simulation results, presented in the appendix, show that under the assumption of the complete pass-throughthe estimation biases in standard REER specifications with PCP are qualitatively similar to the ones under DCP.
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whether the ideal-REER approach also reduces the estimation bias when aggregating bilateral dataempirically.
6 Empirical evidence
A key implication from the theoretical analysis is that running exchange rate regressions on the bilat-eral or on the aggregate level does not lead to a significant bias in the elasticities if the trade elasticityis the same for all countries. While recognizing that in practice exchange rate elasticities differ acrosscountries (see, for example, Spilimbergo and Vamvakidis (2003) or Bussière et al. (2016)), we test thetheoretical prediction of no-significant bias in exchange rate regressions when pooling across coun-tries. Later we relax this assumption and test for significant differences between elasticities estimatedon the bilateral and aggregate levels on a country-per-country basis.
Our empirical approach uses data for bilateral exchange rates from the IMF financial statisticsdatabase. Data on real effective exchange rates are coming from the Bank for International Settle-ments. We use the Narrow Index as it has the advantage of covering a longer sample period. TheNarrow Index is a trade-weighted effective exchange rate over 25 economies (excluding the euroarea). Inflation (proxied by the GDP deflator) and nominal GDP data are from national accounts andconverted into international currency (USD) using the bilateral exchange rate with the USD. Bilateraltrade data are retrieved from CEPII’s historical trade database (see Fouquin and Hugot (2016)). Weuse absorption, defined as GDP minus net exports, to be a proxy for foreign demand. For changes inaggregate export prices, we use producer price indexes (PPI) from national accounts, the OECD andthe IMF depending on data availability. Taken together, our sample comprises a panel of 25 countrieswith yearly observations from 1964 to 2014.
Given that the ideal-REER estimation equation depends on the currency denomination of tradeflows, the first step is to run exchange rate pass-through regressions and shed light on the pricingbehavior of exporters. To estimate the reaction of export prices to exchange rate changes, we followCasas et al. (2017) and regress the export price of country i to country j (denominated in countryi’s currency,PE
i,j,t) on country i’s exchange rate with the USD (ri,USD,t), the bilateral exchange ratebetween country i and country j (rij,t) and the producer price index of country i (PPIi,t), a proxy forchanges in marginal costs:
∆ ln PEi,j,t = α1∆ ln ri,USD,t + α2∆ ln ri,j,t + α3∆ ln PPIi,t + ui,j,t
The results in Table 4 show that the export price varies mainly with the USD exchange rate.The estimated coefficient of the USD exchange rate is −0.15 compared with a bilateral exchange ratecoefficient of −0.05 (see column (4)).
We repeat the exercise for the import side and estimate the reaction of the import price denomi-nated in importer’s currency to exchange rate changes with the following specification:
24
Table 4: Exchange Rate Pass-Through into Export Prices
Dependent variable: Log-change (exporter price)
(1) (2) (3) (4)
Log-change (exchange rate to USD) 0.341∗∗∗ 0.427∗∗ 0.177∗∗ 0.149∗∗
(0.0794) (0.120) (0.0508) (0.0403)
Log-change (bilateral exchange rate) 0.134∗∗ 0.0517∗∗
(0.0423) (0.0169)
Log-change (producer price index) 0.759∗∗∗ 0.744∗∗∗
(0.0617) (0.0680)
Observations 29350 29350 29350 29350R2 0.305 0.331 0.625 0.629Standard errors clustered at the exporting country in parentheses∗ p < 0.05, ∗∗ p < 0.01, ∗∗∗ p < 0.001
∆ ln PIi,j,t = α1∆ ln ri,USD,t + α2∆ ln ri,j,t + α3∆ ln PPIj,t + ui,j,t,
where PIi,j,t denotes the import price of country i from country j (denominated in country j’s cur-
rency). Similar to the export price, the variation of the import price is predominantly driven by theUSD exchange rate. Table 5 column (4) shows that the pass-through coefficient for the USD importprice is −0.89 while the coefficient of the bilateral exchange rate is −0.21. These findings are similarto Casas et al. (2017) and support the dominant currency paradigm.
Table 5: Exchange Rate Pass-Through into Import Prices
Dependent variable: Log-change (importer price)
(1) (2) (3) (4)
Log-change (exchange rate to USD) 0.445∗∗∗ 0.553∗∗∗ 0.700∗∗∗ 0.869∗∗∗
(0.00752) (0.00986) (0.00811) (0.0124)
Log-change (bilateral exchange rate) 0.170∗∗∗ 0.072∗∗∗
(0.00651) (0.0104)
Log-change (producer price index) 0.434∗∗∗ 0.612∗∗∗
(0.00687) (0.0112)
Observations 29350 29350 29350 29350R2 0.383 0.414 0.539 0.563Standard errors clustered at the importing country in parentheses∗ p < 0.05, ∗∗ p < 0.01, ∗∗∗ p < 0.001
Next, we evaluate the empirical performance of regression specifications 1 to 5 discussed in the
25
Table 6: Empirical results with variables denominated in current USD (DCP)
Bilateral Aggregate
Baseline GM mistake REER McGuirk d ln approx. Alternative("ideal-REER") ("real-REER") weights
(1) (2) (3) (4) (5) (6)
Exchange ratePoint estimate -.459 -.409 -.380 -.584 -.291 -.254Std. error (0.024) (0.051) (0.059) (0.057) (0.066) (0.067)Foreign demandPoint estimate 1.184 1.199 .758 1.092 1.207 1.122Std. error. (0.027) (0.063) (0.048) (0.037) (0.083) (0.049)
Observations 27940 1077 1077 1142 1077 1198R2 .157 .567 .570 .612 .579 .516
Notes: The sample consists of 25 countries over the period 1964-2014.
simulation section. We convert all variables into US dollars and use the following definitions for thereal exchange rate and foreign demand.18 The real exchange rate of exporter i (RERit) is defined asthe change in the nominal exchange rate of country i vis-à-vis the USD multiplied by the changein the PPI of country i. To calculate foreign demand, we use the current value of absorption in theimporting country j denominated in the international currency (Xjt). Inflation proxies for changes inthe importer’s price index (Pjt). For the weights ωnit, we use the share of exports of country i goingto country n in year t. This definition of the variables applies to all aggregate regressions with theexception of the REER in the “alternative weights” specification defined in equation 17. In this case,we use the BIS Narrow Index as the REER’s empirical counterpart.
The results are shown in table 6. The first observation is that the elasticities estimated frombilateral trade flows and from aggregate trade flows using the ideal-REER approach are not signif-icantly different from each other. The point estimate of the exchange rate elasticity using bilateralflows is −0.46 (column (1)) and the estimate using the ideal-REER is −0.41 (column (2)). The de-mand elasticities are almost identical with the point estimates of 1.18 and 1.19, respectively. Forall other specifications (columns (3) to (6)), the aggregation method results in significant differencesin the estimated elasticities compared with the bilateral level in column (1). The specification withthe largest gap is the “Gold medal (GM) mistake” approach in column (3) with a point estimate of−0.38 for the exchange rate and 0.76 for the demand elasticity. The standard REER approach basedon McGuirk (column (4)) fits the data best with the highest R2 but produces a higher exchange rate(−0.58) and a lower demand elasticity (1.09). The specification with the lowest R2 is the “Alterna-tive weights” approach in column (6). Overall, these results highlight the trade-off one faces when
18The US is the reference for all countries in our sample except for the US. In this case, the reference currency is thepound sterling.
26
Figure 4: Country-specific estimates of aggregate vs. bilateral demand and exchange rate elasticities.
(a) Baseline ("ideal-REER")
AUTAUS
BEL
CAN
CHEDEUDNKESP
FIN FRAGBRGRC
HKG
IRL
ITAJPN
KOR
MEXNED
NOR
NZL PRT
SWESGP
USA
-1.5
-1-.5
0Ex
chan
ge ra
te e
last
icity
(bila
tera
l lev
el)
-1 -.8 -.6 -.4 -.2 0Exchange rate elasticity (aggregate level)
Red line corresponds to 45 degree line. Blue line is best linear fit with 95 perc. confidence interval.
Bilateral versus aggregate regression estimatesIdeal-REER Exchange Rate Elasticities
AUTAUS BEL
CAN
CHEDEUDNKESP
FIN
FRAGBR
GRCHKG
IRL
ITA
JPN
KOR
MEXNEDNOR
NZLPRT SWESGP
USA
11.
52
Dem
and
elas
ticity
(bila
tera
l lev
el)
1 1.5 2Demand elasticity (aggregate level)
Red line corresponds to 45 degree line. Blue line is best linear fit with 95 perc. confidence interval.
Bilateral versus aggregate regression estimatesIdeal-REER Demand Elasticities
(b) REER McGuirk ("real-REER")
AUTAUS
BEL
CAN
CHEDEUDNK
ESP
FIN FRAGBRGRC
HKG
IRL
ITAJPNKOR
MEXNED
NOR
NZLPRT
SWESGP
USA
-1.5
-1-.5
0Ex
chan
ge ra
te e
last
icity
(bila
tera
l lev
el)
-1.2 -1 -.8 -.6 -.4 -.2Exchange rate elasticity (aggregate level)
Red line corresponds to 45 degree line. Blue line is best linear fit with 95 perc. confidence interval.
Bilateral versus aggregate regression estimatesReal-REER Exchange Rate Elasticities
AUTAUS BEL
CAN
CHEDEUDNKESP
FIN
FRAGBR
GRC HKG
IRL
ITAJPN
KOR
MEXNEDNOR
NZL PRTSWE SGPUSA
.51
1.5
22.
5D
eman
d el
astic
ity (b
ilate
ral l
evel
)
.5 1 1.5 2 2.5Demand elasticity (aggregate level)
Red line corresponds to 45 degree line. Blue line is best linear fit with 95 perc. confidence interval.
Bilateral versus aggregate regression estimatesReal-REER Demand Elasticities
deciding which elasticities to use. If forecasting is the main objective, then the model with the bestfit may be the preferred one. If the aim is to use the elasticities of the standard REER approach tocalibrate a macro-model, which relies on aggregate export equations to summarize trade linkagesbetween the different regions in the model, then the counterfactual predictions are inconsistent withthe “micro-level” foundations implied by structural gravity. In this case, the estimates obtained fromthe ideal-REER regression may be the preferred ones.
The pooled estimates in table 6 hide potential heterogeneity in the exchange rate elasticitiesacross countries. Spilimbergo and Vamvakidis (2003) (and many others later) documented this cross-country heterogeneity. We investigate this point further by running the bilateral and the aggregatereal exchange rate regressions on a country-per-country basis. We obtain country-specific exchangerate and demand elasticities to test whether they differ in a significant way.
Figure 4 plots the relationship between the elasticities obtained from bilateral and aggregate re-gressions based on the ideal-REER approach (panel a) as well as the standard REER approach à la
27
McGuirk (panel b). All four panels exhibit significant variation in elasticities across countries andthese results are smaller for elasticities estimated on the bilateral than on the aggregate level. Onepossible explanation is the limited number of observations. The aggregate country-specific regres-sions consist of a time-series analysis with 50 years of observations. In contrast, the bilateral variationconsists of up to 1200 observations (50 years multiplied by the number of trading partners). In theabsence of an aggregation bias, we would expect that the difference in the elasticities does not movein a particular direction, i.e., the difference between the elasticities should be more or less propor-tional to the size of the country-specific elasticities. In other words, the best linear fit between thetwo sets of elasticities should have a slope close to 1. For this reason, we include the best linear fit(in blue) with the 95 percent confidence interval as well as the 45 degree line (in red) into figure 4.Note that in all cases the estimated slope is lower than 1, which confirms the initial observation thatthe cross-country variation in the elasticities estimated on the bilateral level is smaller than thoseobtained from the aggregate level.
With respect to a potential aggregation bias, we expect that the ideal-REER approach will resultin smaller differences between the elasticities than the standard REER approach. Panels (a) and (b)in figure 4 show that this is indeed the case: the absolute difference between the point estimates ofthe elasticities obtained from bilateral trade flows and the ones obtained from aggregate trade flowsis smaller for the ideal-REER approach compared with the standard REER approach. Moreover,the difference is less biased in a particular direction, i.e., the best linear fit (in blue) of the ideal-REERestimates is closer to the 45 degree line (in red) than the best linear fit of the standard REER estimates.Taken together, the empirical results support our theoretical findings, namely that the difference inthe elasticities is related to the functional form assumption in the aggregation of bilateral trade flows.The ideal-REER approach aggregates the bilateral variation in accordance with the gravity model andreduces bias from the aggregation.
Before concluding, we consider an alternative pricing paradigm and estimate our empiricalspecifications in accordance with the PCP shown in equation 25. Table 7 shows the estimated co-efficients. The main difference with respect to the evidence based on DCP is that denominating thevariables in the producer’s currency worsens the estimation performance. Compared with table 6,the R2 and the point estimates of the elasticities are lower while the standard errors of the elastic-ities are higher in all specifications of table 7. With respect to the differences in elasticities acrossdifferent levels of aggregation, the ideal-REER elasticities are closest to the ones estimated on thebilateral level. All other specifications lead to significant differences in elasticities with respect to thebilateral level. Overall, these results suggest that currency denomination matters for the estimationperformance and the quantitative results but not for the qualitative results on the aggregation bias.
28
Table 7: Empirical results with variables denominated in the exporter’s currency (PCP)
Bilateral Aggregate
Baseline GM mistake REER McGuirk d ln approx. Alternative("ideal-REER") ("real-REER") weights
(1) (2) (3) (4) (5) (6)
Exchange ratePoint estimate -.461 -.384 -.289 -.567 -.243 -.181Std. error (0.039) (0.072) (0.057) (0.062) (0.082) (0.074)Foreign demandPoint estimate 1.132 1.102 .942 1.066 1.095 .979Std. error. (0.019) (0.106) (0.096) (0.048) (0.112) (0.072)
Observations 27940 1077 1077 1142 1077 1198R2 .157 .407 .497 .587 .489 .460
Notes: The sample consists of 25 countries over the period 1964-2014.
7 Conclusion
One reason why country-specific bilateral exchange rate and demand elasticities differ from aggre-gate elasticities is incorrect aggregation. The standard approach taken in the literature is based on functional form assumptions and an incorrect weighting scheme. A consequence of these assump-tions is that both the trade (exchange rate) and the demand elasticity are biased. However, our sim-ulations and the empirical evidence show that these biases are quantitatively small but statistically significant.
The fact that many macroeconomics models are calibrated with elasticities based on standard REER regressions has important policy implications. In particular, models calibrated with the elas-ticities estimated from aggregate data lead to inaccurate predictions by exaggerating the response of exports and, by extension, output following an exchange rate shock. Calibrating these models with elasticity estimates using our new ideal-REER regression specification with variables denominated in the dominant international currency (i.e., the US dollar) improve the model’s fit and results in predictions consistent with microeconomic behavior in bilateral trade equations.
29
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32
8 Appendix
8.1 Simulation results for alternative values of θ
Table 8: GETI simulation elasticities of country-specific random exchange rate shocks, stochastic trade costsand θ = 0.8
Baseline GM mistake REER McGuirk d ln approx. Alternative("ideal-REER") ("real-REER") weights
(1) (2) (3) (4) (5)
Exchange rateMean -.8 -.757 -.788 -.787 -.781Bias 0 .043 .012 .013 .019Std dev. 0 .101 .126 .124 .132MSE 1/2 0 .109 .127 .125 .133
Foreign demandMean 1 .795 1.092 1.085 1.127Bias 0 .205 .092 .085 .127Std dev. 0 .283 .182 .191 .201MSE 1/2 0 .350 .203 .209 .237
Notes: The sample consists of 39 countries and each country receives 100 random exchange rate and trade cost shocks.The total number of estimated exchange rate and demand elasticities is 3900 for each of the 5 different specifications.The top cell labeled "Mean" reports the sample mean of the respective estimates for each type of elasticity. The rowslabeled "Bias" give the estimated bias, where est. bias = sample mean - true value. Rows labeled "Std Dev." give thesample standard deviation of the 3900 point estimates. Rows labeled "MSE1/2" give the square root of the estimatedmean squared error (MSE), where estimated MSE = (est. bias)2 + (std dev)2.
33
8.2 Simulation results for producer currency pricing
Table 9: GETI simulation elasticities of country-specific random exchange rate shocks in producer currencypricing (PCP) and stochastic trade costs
Baseline GM mistake REER McGuirk d ln approx. Alternative("ideal-REER") ("real-REER") weights
(1) (2) (3) (4) (5)
Exchange rateMean -4 -3.891 -4.029 -4.032 -3.967Bias 0 .119 .029 .032 .033Std dev. 0 .143 .176 .185 .179MSE 1/2 0 .186 .178 .187 .182
Foreign demandMean 1 1.26 1.112 1.101 1.224Bias 0 .26 .112 .101 .224Std dev. 0 .291 .243 .256 .344MSE 1/2 0 .390 .267 .275 .411
Notes: The sample consists of 39 countries and each country receives 100 random exchange rate and trade cost shocks.The total number of estimated exchange rate and demand elasticities is 3900 for each of the 5 different specifications.The top cell labeled "Mean" reports the sample mean of the respective estimates for each type of elasticity. The rowslabeled "Bias" give the estimated bias, where est. bias = sample mean - true value. Rows labeled "Std Dev." give thesample standard deviation of the 3900 point estimates. Rows labeled "MSE1/2" give the square root of the estimatedmean squared error (MSE), where estimated MSE = (est. bias)2 + (std dev)2.
34
8.3 Derivations for McGuirk (1986)
Consider the CES price index in country n:
Pn =
(K
∑k=1
P1−σnk
) 11−σ
, (26)
where σ is the elasticity of substitution. Note that by the CES demand, the export price of country kin destination n can be written as follows:
P1−σnk = (PnkXnk)
P−σn
Xn(27)
Next, we can replace the export price in the sum
P1−σn =
(K
∑k=1
(PnkXnk)P−σ
nXn
)and simplify to
Pn =K
∑k=1
PnkXnkXn
.
Taking the total derivative implies
dPn
Pn=
K
∑k=1
PnkXnkXnPn
dPnkPnk
+K
∑k=1
PnkXnkXnPn
d(
XnkXn
)XnkXn
,
where the second term is a weighted average of percentage changes in market shares and equalszero. Noting that the term PnkXnk
XnPnreflects the import shares πnk , we get
dPn
Pn=
K
∑k=1
πnkdPnkPnk
.
If we consider a log change, we get
4 ln Pn =K
∑k=1
πnk4 ln Pnk,
where the change in price index is a weighted geometric average of the export price changes.19 Now,we replace the import price index in the bilateral export equation 9 by the sum of the bilateral prices
19Instead of the approximation of the price index, we can calculate the exact change in the price index by using the hatnotation. Simply, consider equation 26 with the new prices after the policy change (P′n and P′kn) and divide both sides byPn. Using the fact that the relative prices equal the import expenditure share (πnk = P1−σ
kn /P1−σn , see equation 27), we
obtain the exact price change (ln P1−σn = ln ∑K
k=1 πnk P1−σnk ).
35
and get
4 ln Xni = 4 ln Xn − θ
(4 ln Pni −
K
∑k=1
πnk4 ln Pnk
).
Note that ∑Kk=1 πnk = 1, thus the equation simplifies to
4 ln Xni = 4 ln Xn − θ
((1− πni)4 ln Pni −∑
k 6=iπnk4 ln Pnk
)
and noting again that ∑k 6=i πnk = (1− πni), we get the following bilateral equation:
4 ln Xni = 4 ln Xn − θ ∑k 6=i
πnk4 ln(
Pni
Pnk
).
Using the fact that the change in the bilateral price index equals the change in producer pricesdenominated in producer currency times the exchange rate, 4 ln Pni = 4 ln riPii and 4 ln Pnk =
4 ln rkPkk, we can aggregate across all importing countries and obtain the double-weighted exchangerate:
∑n 6=i
ωni4 ln Xni = −θ ∑n 6=i
ωni ∑k 6=i
πnk4 ln(
ri
rk
Pii
Pkk
)+ ∑
n 6=iωni4 ln Xn
Or, as outlined in the text, in hat notation (using4 ln x = ln x):
∑n 6=i
ωni ln Xni = −θ ∑n 6=i
ωni ∑k 6=i
πnk ln(
ri
rk
Pii
Pkk
)+ ∑
n 6=iωni ln Xn
8.4 Derivation of alternative weights
Consider the correct REER equation 11. Bayoumi et al. (2005) start from this definition but includethe domestic market share of the exporter i and assumes that the change in the export price is pro-portional to the change in the producer index (i.e., Pni ∝ Pii ), i.e.,
ln ˆREERi =N
∑n=1
∑k 6=i
ψniπnk ln(
Pii
Pkk
). (28)
So their weights are defined as
Wki =N
∑n=1
ψniπnk.
To derive the IMF weights, start from equation 28:
36
ln ˆREERi =N
∑n=1
∑k 6=i
ψniπnk ln(
Pii
Pkk
)Note that we can get ln Pi out of the sum by ∑N
n=1 ψni ∑k 6=i πnk = ∑Nn=1 ψni(1 − πni) = 1 −
∑Nn=1 ψniπni:
ln ˆREERi = (1−N
∑n=1
ψniπni) ln(
Pii)−∑
k 6=i
N
∑n=1
ψniπnk ln(
Pkk)
,
which can be rewritten as
ln ˆREERi = ln(
Pii)−
N
∑k=1
N
∑n=1
ψniπnk ln(
Pkk)
.
But note that these weights do not sum to one. To show this, start by
∑k 6=i
Wki =N
∑n=1
∑k 6=i
ψniπnk =N
∑n=1
ψni (1− πni)
since
∑k 6=i
πnk = (1− πni)
and hence we get something different from one:
∑k 6=i
Wki = 1−N
∑n=1
ψniπni
The term ∑Nn=1 ψni (1− πni) is exactly the normalizing factor of the IMF weights. Their weights
are defined as
Wki =∑N
n=1 ψniπnk
∑Nn=1 ψni (1− πni)
.
Note that they are wrong for export equations because they include the domestic market of theexporter in their weights. Also, they are re-normalized, which should not be the case.
8.5 Trade deficit
In the general equilibrium counterfactual we use a nominal exchange rate shock and the presence oftrade deficits to generate variation in income. In the absence of trade deficits a nominal exchange rateshock will be fully absorbed by the nominal wage of the numeraire country and the shock will not
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have any real effects. When we introducing a trade deficit, the trade literature generally considersthe following two scenarios:20
1. Assume that it is a constant fraction of national GDP(
c = DiYi
)where Yi is national GDP.
2. Assume that it is a constant fraction of world GDP(
c = DiY
)where Y is world GDP.
The assumption that the deficit is a constant fraction of national GDP implies that a nominal exchangerate shock does not lead to any real effects. On the other hand, if the deficit is fixed in internationalcurrency the exchange rate shock will have real effects. The proof for this statement follows.
Using the structural gravity model outlined in the paper, we can define our model as follows:
Xni =1Y
YiXn
ΩiΦnφni, where Φn =
N
∑`=1
(Yi
Ωiφni
)and Ωi =
N
∑n=1
φniXn
Φn,
where Xni denotes the bilateral trade flows, Φn the outward and Ωi the inward multilateral resistanceterm. Introducing the bilateral exchange rate ri
rnwe can rewrite the equations of structural gravity as
follows:
πni =Siφni
Φn, where φni =
(ri
rnτni
)−θ
, Φn = (Pn)−θ = ∑
iSiφni and Si = Ti
(wβ
i p1−βi
)−θ
Let’s start by rewriting the bilateral export equation:
XniYYiXn
=φni
ΩiΦn(29)
and the multilateral resistance terms as
Φn =N
∑i=1
(Yi
Ωiφni
)and Ωi =
N
∑n=1
φniXn
Φn.
Plugging in the exchange rate and trade costs for φni and simplifying, we get:
Φnr−θn =
N
∑i=1
(Yi
Ωi(riτni)
−θ)
and Ωirθi =
N
∑n=1
(r−1
n τni
)−θ Xn
Φn.
To solve the system of equations, define the shock to the bilateral exchange rate as a function ofthe initial values for the multilateral resistance terms:(
ri
rn
)−θ
=(
Ω0i Φ0
n
)20See the Handbook of International Economics chapter by Costinot and Rodríguez-Clare (2014).
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Plugging the exchange rate shocks into the multilateral resistance terms shows that the RHS ofequation 29 does not vary with the exchange rate shock and cancels out in the numerator and thedenominator:
φni
ΩiΦn=
(Ω0
i Φ0n)(τni)
−θ
ΩiΦnΦ0
nΩ0i
=(τni)
−θ
ΩiΦn
To complete the proof, we have to show that the LHS of equation 29 is also invariant to exchangerate changes. We start by writing total expenditure Xn as a function of output Yn and the trade deficitDn:
XniYYiXn
=XniY
YiYn + Dn
If the deficit is a constant fraction of GDP, we can write
rnXniriY
rnYn
(1 + Dn
Yn
)riYi
=XniYYiXn
,
which is invariant to an exchange rate change. A nominal exchange rate shock does not have any realeffects. If, on the other hand, the deficit is fixed in international currency, we replace total expenditureXn as a function of output Yn and the trade deficit Dnas follows:
rnXniriY(rnYn +
DnY
)riYi
6= XniYYiXn
In this case the deficit does not change in proportion to the exchange rate shock and the LHS ofequation 29 is not invariant to exchange rate changes. A nominal exchange rate shock will have realeffects.
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