Industry trade and exchange-rate fluctuations: Evidence from the U.S. and Chile

- We assess effects of depreciation on the trade balance between Chile and the U.S.
- The first study that uses trade at commodity level.
- A total of 49 industries are investigated.
- Manufacturing industries react to depreciation more than agriculture goods.

In recent years, research on the effects of currency movements on trade has used disaggregated data and error-correction and cointegration models. The resulting short-run and long-run estimates can be used to isolate not only specific industry responses, but also dynamic effects such as the “J curve.” This study examines the United States' trade balance with Chile, both at the aggregate level and for 49 individual industries. Of the 40 cointegrated industries, only ten improve in the long run after a depreciation, and only nine exhibit the temporary deterioration and eventual improvement typical of a “J curve.” We find that most effects concentrated among certain manufactures, with agricultural products and raw materials responding less to currency movements than do other commodities.