The Valuation Effects of Trade


Omar Barbiero. 2019. “The Valuation Effects of Trade.” Job Market Paper.
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This paper estimates the cash flow effects of currency mismatches generated by foreign-priced operations of French manufacturers. My results show how large trade value sensitivities to currency fluctuations coexist with the evidence of disconnect between exchange rates and real macroeconomic fundamentals. I find that the value of transactions invoiced in foreign currencies is twice as sensitive to exchange rates as the value of transactions invoiced in the domestic currency. Movements in nominal valuations drive this result, as opposed to any real demand response. I aggregate pricing choices to the firm level to build a shift-share measure of invoice currency mismatch. My measure outperforms any trade-weighted effective exchange rate index at explaining cash flows of trading firms. However, virtually all investment and payroll sensitivity to foreign-pricing mismatch come from small domestic-oriented firms. The real macroeconomic effects are limited because large traders are liquid and small exporters partially hedge their dollar-priced exports with dollar-priced imports.

Last updated on 04/14/2020