Dominant currencies and the export supply channel

The dominant currency paradigm (DCP) predicts negligible effects of exchange rate changes on export volumes through the expenditure-switching channel (Gopinath et al., 2020). However, exports can still adjust other supply-side channels. With bilateral trade data at HS2-product level, panel fixed-effects regressions and an instrumental variables (IV) approach, this paper presents several novel findings: (i), a depreciation exporter’s against US-dollar increases total nominal between non-US countries, whereas rates matter very little. (ii), response is primarily driven by increase in unit values currency, less than third impact volumes. (iii), there no statistically significant average per firm (the intensive margin), while solely entry exporting firms extensive margin). These results are robust across econometric specifications, estimators definitions highlight how supply to world with currencies deepens our understanding aggregate adjustment.