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On the link between U.S.‐China commodity trade and exchange rate uncertainty: An asymmetric analysis

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Listed:
  • Jia Xu
  • Mohsen Bahmani‐Oskooee
  • Huseyin Karamelikli

Abstract

Previous studies that assessed the impact of exchange rate volatility on Chinese trade flows reported mixed findings. They all have assumed that the effects are symmetric. In this paper, we investigate the possibility of asymmetric effects of the real yuan–dollar volatility on the trade flows of 84 2‐digit industries that trade between the two countries. We show that estimating asymmetric and nonlinear models for each industry yields much more significant outcomes than estimating symmetric and linear models. We find that trade flows of 2/3rd of industries are affected asymmetrically in the short run. Short‐run effects last into asymmetric adverse long‐run effects in 35 U.S. exporting industries (with export share of 45%) to China and in 44 Chinese exporting industries (with 76% export share) to the U.S. Since increased volatility hurts a significant share of both countries' exports, a stable yuan–dollar rate as well as inflation rate will benefit both countries in the long run.

Suggested Citation

  • Jia Xu & Mohsen Bahmani‐Oskooee & Huseyin Karamelikli, 2022. "On the link between U.S.‐China commodity trade and exchange rate uncertainty: An asymmetric analysis," Australian Economic Papers, Wiley Blackwell, vol. 61(1), pages 87-137, March.
    • Handle: RePEc:bla:ausecp:v:61:y:2022:i:1:p:87-137
    DOI: 10.1111/1467-8454.12241
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    References listed on IDEAS

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