Demand for Value Added and Value-Added Exchange Rates

Rudolfs Bems, Robert C. Johnson

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

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Year of publication:	April 2015
Authors:	Bems, Rudolfs
Other Persons:	Johnson, Robert C. (contributor)
Institutions:	National Bureau of Economic Research (contributor)
Publisher:	Cambridge, Mass : National Bureau of Economic Research
Subject:	Wertschöpfung \| Value added \| Kaufkraftparität \| Purchasing power parity \| Input-Output-Analyse \| Input-output analysis \| Welt \| World \| Lieferkette \| Supply chain \| Abwertung \| Currency devaluation \| Wechselkurs \| Exchange rate

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