New working paper using micro data at the firm-loan level
We are accustomed to linking depreciation with boosting exports; this neglects the financial channels of dollar appreciation working through working capital that weighs on global value chains
Using data on 4.6 million shipments at the sector level, and loan-level data that matches borrowing firms and lending banks we find that firms more exposed to wholesale-funded banks suffer more from a stronger dollar
Say firms A and B ship identical products to same destinations, but A borrows from bank with more wholesale dollar funding than B’s bank. Then A’s exports drop more than B’s exports when the dollar strengthens.
This is because A’s bank contracts credit more than B’s bank; working capital of A gets squeezed more than working capital of B
Global value chains rely heavily on dollar funding; so stronger dollar weighs on global exports
Full paper with all results here
bis.org/publ/work819.h…
bis.org/publ/work819.h…
Worth bearing this in mind when contemplating the downturn in global manufacturing and trade; see @Trinhnomics for good real-time commentary along these lines
See also this presentation I gave at the German Federal Ministry of Finance in May: “What is behind the recent slowdown?” bis.org/speeches/sp190…
Key chart for the aggregates: 
A footnote: manufacturing purchasing managers indices (PMIs) also reflect the same underlying mechanism; a stronger dollar shows up as weaker global PMIs
This piece in the September BIS Quarterly Review explains bis.org/publ/qtrpdf/r_…
“Financial conditions and purchasing managers indices: exploring the links” bis.org/publ/qtrpdf/r_…
