Exchange Rates and Jobs: What Do We Learn from Job Flows?

By Pierre-Olivier Gournichas
1998| Working Paper No. 1503

Currency fluctuations provide a substantial source of movements in relative prices that is largely exogenous to the firm. This paper evaluates empirically and theoretically the importance of exchange rate movements on job reallocation across and within sectors. The objective is (1) to provide our understanding of how reallocative shocks propagate through the economy. The empirical results indicate that exchange rates have a significant effect on gross and net job flows in the traded good sector. Moreover, the paper finds that job creation and destruction comove positively, following a real exchange rate shock. Appreciations are associated with additional turbulence, and depreciations with a ‘chill’. The paper then argues that existing non-representative agent reallocation models have hard time replicating the salient features of the data. The results indicate a strong tension between the positive comovements of gross flows in response to reallocative disturbances and the negative comovement in response to aggregate shocks.