EXCHANGE RATE CHANGES AND THE MEASUREMENT OF EXPORT INSTABILITY
| Author | David A. Brodsky |
| Published date | 01 August 1983 |
| DOI | http://doi.org/10.1111/j.1468-0084.1983.mp45003004.x |
| Date | 01 August 1983 |
EXCHANGE RATE CHANGES AND THE
MEASUREMENT OF EXPORT INSTABILITY
David A. Brodsky*
Export instability has continued to fascinate economists for many
years, and over the course of the last two decades there has been
growing recognition that the results obtained may be quite sensitive
to the precise measure of instability employed. In view of this, it is
perhaps somewhat surprising that a basic element in such quantitative
studies namely, the units in which exports are to be measured has
been almost totally neglected. Virtually without exception, it would
seem, 'exports' has referred to the value of exports in 'foreign' currency,
and foreign currency has meant almost exclusively US dollars. Indeed,
a number of studies have not even made explicit the fact that the dollar
was used as the numeraire currency.
The reason for such neglect is not difficult to comprehend - during
the time periods under examination (generally the l950s and 1960s)
the terms 'dollar' and 'foreign exchange' were virtually synonymous.
Moreover, as throughout the Bretton Woods period exchange rates
among the major currencies were adjusted only infrequently, one might
well assume that the choice of a numeraire for measuring exports, and
hence export instability, was of little importance. However, whatever
constancy which may have existed among the major world currencies
has clearly ceased since the breakdown of the Bretton Woods par value
system in the early 1970s, and the move to generalized floating among
the major currencies: exchange rate movements have not only been
larger, and more frequent, than was previously the case, but exchange
rate instability has also increased substantially.
The objective of this note will be to test, first, the validity of the
implicit assumption that, as far as the Bretton Woods period is con-
cerned, measured export instability is essentially independent of the
numeraire currency used; and second, the extent to which such sensi-
tivity, if any, of measured instability to the choice of numeraire currency,
has increased in recent years.
* The author wishes to express his appreciation to Alfred Maizels and Dani Rodrik for help-
ful comments on an earlier draft. The views expressed arc the author's and not necessarily those
of the United Nations.
For a discussion of exchange rate instability in the pre- and post-1973 periods, see, for
example, Brodsky, Helleiner and Sampson (1981).
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