2012年-CEPS欧洲政策研究中心_Has_Trade_any_Importance_in_the_Transmission_of_Currency_Shocks_25页_237kb

Summary: Has Trade Any Importance in the Transmission of Currency Shocks?

Core Content

This working paper investigates the role of trade in the transmission of currency shocks among new EU member states from Central and Eastern Europe (CEECs). It explores how trade linkages, trade structure, and firm pricing behaviors influence the vulnerability of these countries to exchange rate disturbances, particularly in the context of the European Exchange Rate Mechanism (ERM) II and the transition to the euro.

Main Viewpoints

1. Trade as a Transmission Channel

• Trade linkages are considered a significant mechanism through which currency shocks are transmitted between geographically close countries.
• The centre-periphery (CP) model suggests that:
  • If there is no pass-through, direct bilateral trade links may be more important than competition in third markets.
  • If there is full pass-through, a high share of bilateral trade within a region can limit beggar-thy-neighbour effects.
• The degree of export similarity among countries in the periphery plays a key role in amplifying or mitigating the effects of currency shocks.

2. Theoretical Background

• Theoretical models, such as the Nurske model, highlight how devaluations in one country can lead to income and price effects on neighboring countries.
• Gerlach & Smets (1995) and Corsetti et al. (1998b) demonstrate that devaluations can cause output contractions, trade deficits, and changes in the price level of goods in neighboring countries.
• Corsetti et al. further argue that the effects of devaluation on a partner country may not always be negative, especially when considering terms of trade changes.

3. Empirical Evidence

• Eichengreen et al. (1996) found that trade linkages significantly increase the likelihood of speculative attacks in other countries.
• Caramazza et al. (1999) showed that the trade channel becomes significant only when a country already has external imbalances.
• Glick & Rose (1998) conclude that currency crises are fundamentally regional phenomena, supported by strong empirical evidence on trade linkages.
• Forbes (2000, 2001) emphasizes that firm-level data indicate trade and competition in export industries as important transmission mechanisms during crises.
• Kaminsky & Reinhart (2000) find that countries with similar export structures are more likely to transmit shocks due to product substitutability and complementarity in trade.

Key Information

1. CEECs and ERM II

• CEECs are expected to join ERM II before adopting the euro.
• They currently operate under relatively more volatile exchange rate regimes.
• The financial markets in CEECs are not yet fully developed, making trade linkages a more critical transmission channel.

2. Trade Structure and Vulnerability

• Intra-regional trade and export similarity are key indicators of vulnerability.
• Complementarity in trade (e.g., intermediate goods) can lead to positive price effects and increased competitiveness.
• Substitutability of goods can lead to negative price effects and higher vulnerability.

3. Pass-Through and Transmission

• Pass-through refers to how exchange rate changes affect domestic prices.
• Low pass-through countries (e.g., Slovakia, Czech Republic, Estonia, Latvia) are less likely to transmit currency shocks.
• High pass-through countries (e.g., Poland, Hungary, Slovenia) are more likely to transmit shocks.
• The paper highlights that trade structure and firm pricing behavior are important factors in determining the intensity of shock transmission.

Conclusion

• The paper argues that trade is a crucial channel for the transmission of currency shocks, particularly in the context of the CEECs.
• It bridges the gap between theory and empirical studies, focusing on trade structure and firm-level responses to exchange rate changes.
• The results suggest that while trade linkages are important, they are not the only determinant of crisis transmission. Other factors, such as external imbalances and financial linkages, also play a role.
• The implication for policy is that the sustainability of ERM II depends on the specific trade characteristics of CEECs, and that countries with more integrated trade structures are more vulnerable to shocks.

References to Key Studies

• Eichengreen et al. (1996): Found that trade linkages significantly increase the likelihood of speculative attacks.
• Caramazza et al. (1999): Showed that the trade channel becomes significant in the presence of external imbalances.
• Glick & Rose (1998): Concluded that currency crises are regional phenomena.
• Forbes (2000, 2001): Highlighted the importance of firm-level data in understanding the transmission of crises.
• Kaminsky & Reinhart (2000): Found that export similarity and product substitutability are key factors in the spread of shocks.

Policy Implications

• The sustainability of ERM II is influenced by trade structures and pass-through rates.
• Country-specific policies should consider the degree of trade integration and export composition.
• Trade linkages can either amplify or mitigate the effects of currency shocks, depending on the degree of substitutability and price pass-through.