Link exchange is one of the most effective method for SEO. But its beneficial only when you exchange link with relevant sites. Else it may, even, effect your site's present reputation too.
I don't think reciprocal exchanges are a great way to do SEO, but they are a natural way to get some of your links.
If the only sites that will give you a link are those with zero traffic then you obviously are offering a low quality site, as well. So, perhaps reciprocal links are not the way to start a link campaign since you don't have anything to offer. But these sorts of links can be part of a healthy link profile.
To quote Matt Cutts "Reciprocal links by themselves aren’t automatically bad, but we’ve communicated before that there is such a thing as excessive reciprocal linking."
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Matt Cutts: Google Hell?
Reciprocal links by themselves aren’t automatically bad, but we’ve communicated before that there is such a thing as excessive reciprocal linking.
I cannot believe that there are people still repeating that tired old myth. I myself have demonstrated how both it and a pyramid are mathematically inferior to a star topology countless times here.
I think guest blogging is much more effective in these post panda days for most niche sites. But you have to be a good writer to fully take advantage of this method.
Re what mjtaylor said about a natural link profile, I agree. Sometimes you just have to do what makes sense without overanalyzing. In the context of local sites reciprocal linking to other local sites, it makes a lot of sense. People visiting an area need to eat, drink, shop, and find lodging, and will also be interested in other things the region has to offer. Make it easy for your visitors! This is a pretty obvious example of a good reason for reciprocal linking. I am sure there are others. Just use some common sense about it.