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Board of Governors of the Federal Reserve System (U.S.)
International Finance Discussion Papers
Export dynamics in large devaluations
George Alessandria
Sangeeta Pratap
Vivian Z. Yue
Abstract

We study the source and consequences of sluggish export dynamics in emerging markets following large devaluations. We document two main features of exports that are puzzling for standard trade models. First, given the change in relative prices, exports tend to grow gradually following a devaluation. Second, high interest rates tend to suppress exports. To address these features of export dynamics, we embed a model of endogenous export participation due to sunk and per period export costs into an otherwise standard small open economy. In response to shocks to productivity, the interest rate, and the discount factor, we find the model can capture the salient features of export dynamics documented. At the aggregate level, the features giving rise to sluggish exports lead to more gradual net export reversals, sharper contractions and recoveries in output, and endogenous stagnation in labor productivity.


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George Alessandria & Sangeeta Pratap & Vivian Z. Yue, Export dynamics in large devaluations, Board of Governors of the Federal Reserve System (U.S.), International Finance Discussion Papers 1087, 2013.
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