Description

We examine the role of cross-border input linkages in governing how international relative
price changes influence demand for domestic value added. We define a novel value-added
real effective exchange rate (REER), which aggregates bilateral value-added price changes,
and link this REER to demand for value added. Input linkages enable countries to gain
competitiveness following depreciations by supply chain partners, and hence counterbalance
beggar-thy-neighbor effects. Cross-country differences in input linkages also imply that the
elasticity of demand for value added is country specific. Using global input-output data, we
demonstrate these conceptual insights are quantitatively important and compute historical
value-added REERs.

More publications in this series: Working Papers

More publications by: Rudolfs Bems ; Robert C. Johnson