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Does exchange rate risk affect exports asymmetrically? Asian evidence

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  • Fang, WenShwo
  • Lai, YiHao
  • Miller, Stephen M.

Abstract

This paper tests the hypothesis of asymmetric effects of exchange rate risk with a dynamic conditional correlation bivariate GARCH(1,1)-M model. The asymmetry means that exchange rate risk (volatility) affects exports differently during appreciations and depreciations, which may reflect exporter's asymmetric risk perception and hedging behavior. Using bilateral exports from eight Asian countries to the US, the real exchange rate risk significantly affects exports for all countries, negative or positive, in periods of depreciation or appreciation. Thus, policy makers can consider the stability of the exchange rate in addition to its depreciation as a method of controlling export growth.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 28 (2009)
Issue (Month): 2 (March)
Pages: 215-239

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Handle: RePEc:eee:jimfin:v:28:y:2009:i:2:p:215-239

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Web page: http://www.elsevier.com/locate/inca/30443

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Keywords: Exports Exchange rate risk Asymmetric hedging DCC bivariate GARCH-M model;

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Cited by:
  1. Grier, Kevin B. & Smallwood, Aaron D., 2013. "Exchange rate shocks and trade: A multivariate GARCH-M approach," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 282-305.
  2. Chia-Hsun Hsieh & Shian-Chang Huang, 2012. "Time-Varying Dependency and Structural Changes in Currency Markets," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 48(2), pages 94-127, March.
  3. Huang, Alex YiHou & Peng, Sheng-Pen & Li, Fangjhy & Ke, Ching-Jie, 2011. "Volatility forecasting of exchange rate by quantile regression," International Review of Economics & Finance, Elsevier, vol. 20(4), pages 591-606, October.

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