实际汇率和净贸易动态：金融和贸易冲击

International Finance Discussion Papers ISSN 1073-2500 (Print)ISSN 2767-4509 (Online) Number 1419 August 2025 Real Exchange Rate and Net Trade Dynamics: Financial and Trade Shocks Marcos Mac Mullen, and Soo Kyung Woo Please cite this paper as:MacMullen,Marcos,and Soo Kyung Woo(2025).“RealExchange Rate andNetTrade Dynamics:Financialand Trade Shocks,”International Finance Discus-sion Papers 1419.Washington:Board of Governors of the Federal Reserve System,https://doi.org/10.17016/IFDP.2025.1419. NOTE: International Finance Discussion Papers (IFDPs) are preliminary materials circulated to stimu-late discussion and critical comment.The analysis and conclusions set forth are those of the authors anddo not indicate concurrence by other members of the research staff or the Board of Governors. Referencesin publications to the International Finance Discussion Papers Series (other than acknowledgement) shouldbe cleared with the author(s) to protect the tentative character of these papers. Recent IFDPs are availableon the Web at www.federalreserve.gov/pubs/ifdp/. This paper can be downloaded without charge from theSocial Science Research Network electronic library at www.ssrn.com. Real Exchange Rate and Net Trade Dynamics:Financial and Trade Shocks∗ Marcos Mac Mullen†Soo Kyung Woo‡ This Draft: July 2025Click here for the most recent version Abstract This paper studies the drivers of the US real exchange rate (RER), with a particularfocus on its comovement with net trade (NT) flows. We consider the entire spectrumof frequencies, as the low-frequency variation accounts for 62 and 64 percent of theunconditional variance of the RER and NT, respectively. We develop a generalizationof the standard international business cycle model that successfully rationalizes thejoint dynamics of the RER and NT while accounting for the major puzzles of theRER. We find that, while financial shocks are necessary to capture high frequencyvariation in the RER, trade shocks are essential for the lower frequency fluctuations. JEL Classifications:E30, E44, F30, F41, F44Keywords:International Business Cycles, Exchange Rates, Trade Balance, Trade Dynamics 1Introduction Recent years have seen important advances in the literature on the real exchange rate (RER) dy-namics, a foundational topic in international economics. In particular, a growing body of work hasshown that financial shocks can explain the exchange rate disconnect: the observation that ex-change rates exhibit near-random-walk behavior and appear uncorrelated with macroeconomicfundamentals (Devereux and Engel, 2002; Gabaix and Maggiori, 2015; Itskhoki and Mukhin, 2021).While these developments represent significant progress, we highlight two key limitations in theexisting literature. First, the literature has failed to account for the behavior of net trade (NT) flows.1While theRER reflects the prices that clear the international goods and asset markets, the NT flows arethe quantities traded in those markets. Hence, a comprehensive theory of international businesscycles should capture both the RER and NT dynamics, particularly in the context of generalequilibrium. Figure 1 presents the path of the RER (blue) and NT (red) for the US. The figure showsthat while the RER and NT exhibit a weak correlation at high frequencies, their comovementstrengthens at lower frequencies.2In contrast, models developed in the recent literature tend topredict an almost perfect correlation at high and low frequencies. These models also generateexcess volatility in NT relative to the RER. Second, the existing literature has focused on businesscycle-frequency fluctuations, despite the fact that most of the variance of the RER arises at lowerfrequencies. From the figure, it is clear that the trend (solid red) of the RER drives a large share of its fluctuation.3We show that incorporating low-frequency dynamics offers new insights intothe fundamental drivers of the RER. In this paper, we provide a unified framework for studying the joint dynamics of the RERand NT flows across all frequencies. We generalize the standard two-country international busi-ness cycle model of Backus et al. (1994) by incorporating financial shocks following Itskhoki andMukhin (2021), shocks to the cost of trading goods across countries, and dynamic trade as inAlessandria and Choi (2021).4Our model captures the differential comovement between the RERand NT flows at different frequencies, the frequency decomposition of the RER and NT varianceobserved in the data, and the RER disconnect, along with major business cycle moments. Theomission of any feature–financial shocks, trade shocks, or dynamic trade–results in the inabil-ity to simultaneously account for these empirical patterns. Using this framework we find that, consistent with the recent literature, financial shocks drive most of the variation of the RER athigh frequencies. However, trade shocks are the dominant drivers at lower frequencies, preciselywhere most of th