The effects of exchange rate uncertainty on exports
AbstractWe investigate the effects of exchange rate uncertainty on exports in the context of a multivariate framework in which a structural open economy vector autoregression is modified to accommodate multivariate GARCH-in-Mean errors, as detailed in Elder (Elder, J., 2004. Another perspective on the effects of inflation uncertainty. Journal of Money, Credit, and Banking 36, 912-928). Our measure of exchange rate uncertainty is the conditional standard deviation of the forecast error of the change in the exchange rate. We isolate the effects of exchange rate uncertainty on exports and also analyze how accounting for exchange rate uncertainty affects the response of exports to exchange rate shocks. We estimate the model using aggregate monthly data for the United States, over the flexible exchange rate period (since 1973). We use full information maximum likelihood estimation procedures and find that exchange rate uncertainty has a negative and significant effect on US exports. We also find that accounting for exchange rate uncertainty tends to strengthen the dynamic response of exports to shocks in the exchange rate and that exports respond asymmetrically to positive and negative exchange rate shocks of equal magnitude.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of Macroeconomics.
Volume (Year): 31 (2009)
Issue (Month): 3 (September)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622617
Exchange rate volatility VAR Multivariate GARCH-in-Mean model;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kenen, Peter B & Rodrik, Dani, 1986. "Measuring and Analyzing the Effects of Short-term Volatility in Real Exchange Rates," The Review of Economics and Statistics, MIT Press, vol. 68(2), pages 311-15, May.
- Elder, John, 2004. "Another Perspective on the Effects of Inflation Uncertainty," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(5), pages 911-28, October.
- Viaene, J-M. & De Vries, C.G., 1989.
"International Trade And Exchange Rate Volatility,"
8905, Erasmus University of Rotterdam - Institute for Economic Research.
- Christopher A. Sims & Tao A. Zha, 1998.
"Does monetary policy generate recessions?,"
98-12, Federal Reserve Bank of Atlanta.
- Ethier, Wilfred, 1973. "International Trade and the Forward Exchange Market," American Economic Review, American Economic Association, vol. 63(3), pages 494-503, June.
- Asger Lunde & Peter Reinhard Hansen, 2001.
"A Forecast Comparison of Volatility Models: Does Anything Beat a GARCH(1,1)?,"
2001-04, Brown University, Department of Economics.
- Asger Lunde & Peter R. Hansen, 2005. "A forecast comparison of volatility models: does anything beat a GARCH(1,1)?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(7), pages 873-889.
- Kroner, Kenneth F & Ng, Victor K, 1998. "Modeling Asymmetric Comovements of Asset Returns," Review of Financial Studies, Society for Financial Studies, vol. 11(4), pages 817-44.
- Broll, Udo, 1994. "Foreign Production and Forward Markets," Australian Economic Papers, Wiley Blackwell, vol. 33(62), pages 1-6, June.
- Kroner, Kenneth F. & Lastrapes, William D., 1993. "The impact of exchange rate volatility on international trade: Reduced form estimates using the GARCH-in-mean model," Journal of International Money and Finance, Elsevier, vol. 12(3), pages 298-318, June.
- Silvana Tenreyro, 2003.
"On the trade impact of nominal exchange rate volatility,"
03-2, Federal Reserve Bank of Boston.
- Tenreyro, Silvana, 2007. "On the trade impact of nominal exchange rate volatility," Journal of Development Economics, Elsevier, vol. 82(2), pages 485-508, March.
- De Grauwe, Paul, 1987. "International trade and economic growth in the european monetary system," European Economic Review, Elsevier, vol. 31(1-2), pages 389-398.
- Christopher F. Baum & Mustafa Caglayan & Neslihan Ozkan, 2004.
"Nonlinear effects of exchange rate volatility on the volume of bilateral exports,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 19(1), pages 1-23.
- Christopher F. Baum & Mustafa Caglayan & Neslihan Ozkan, 2000. "Nonlinear Effects of Exchange Rate Volatility on the Volume of Bilateral Exports," Boston College Working Papers in Economics 488, Boston College Department of Economics, revised 30 Jul 2002.
- Klein, Michael W. & Shambaugh, Jay C., 2006.
"Fixed exchange rates and trade,"
Journal of International Economics,
Elsevier, vol. 70(2), pages 359-383, December.
- Franke, Gunter, 1991. "Exchange rate volatility and international trading strategy," Journal of International Money and Finance, Elsevier, vol. 10(2), pages 292-307, June.
- Byrne, Joseph P. & Darby, Julia & MacDonald, Ronald, 2008.
"US trade and exchange rate volatility: A real sectoral bilateral analysis,"
Journal of Macroeconomics,
Elsevier, vol. 30(1), pages 238-259, March.
- Joseph P. Byrne & Julia Darby & Ronald MacDonald, 2006. "US Trade and Exchange Rate Volatility: A Real Sectoral Bilateral Analysis," Working Papers 2006_9, Business School - Economics, University of Glasgow.
- Paul De Grauwe, 1988. "Exchange Rate Variability and the Slowdown in Growth of International Trade," IMF Staff Papers, Palgrave Macmillan, vol. 35(1), pages 63-84, March.
- Vikram Kumar, 1992. "Real effects of exchange risk on international trade," Working Paper 92-5, Federal Reserve Bank of Atlanta.
- Pinelopi K. Goldberg & Michael M. Knetter, 1996.
"Goods Prices and Exchange Rates: What Have We Learned?,"
NBER Working Papers
5862, National Bureau of Economic Research, Inc.
- Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September.
- Brodsky, David A., 1984. "Fixed versus flexible exchange rates and the measurement of exchange rate instability," Journal of International Economics, Elsevier, vol. 16(3-4), pages 295-306, May.
- Thursby, Jerry G & Thursby, Marie C, 1987. "Bilateral Trade Flows, the Linder Hypothesis, and Exchange Risk," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 488-95, August.
- Engle, Robert F. & Kroner, Kenneth F., 1995. "Multivariate Simultaneous Generalized ARCH," Econometric Theory, Cambridge University Press, vol. 11(01), pages 122-150, February.
- Joseph E. Gagnon, 1989.
"Exchange rate variability and the level of international trade,"
International Finance Discussion Papers
369, Board of Governors of the Federal Reserve System (U.S.).
- Gagnon, Joseph E., 1993. "Exchange rate variability and the level of international trade," Journal of International Economics, Elsevier, vol. 34(3-4), pages 269-287, May.
- Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
- Demers, Michel, 1991. "Investment under Uncertainty, Irreversibility and the Arrival of Information over Time," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 333-50, April.
- Halmi Mirela, 2012. "The Correlation Between The Exchange Rate And The Direct Foreign Investments," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 1(1), pages 809-815, July.
- Auboin, Marc & Ruta, Michele, 2013.
"The relationship between exchange rates and international trade: a literature review,"
World Trade Review,
Cambridge University Press, vol. 12(03), pages 577-605, July.
- Marc Auboin & Michele Ruta, 2012. "The Relationship between Exchange Rates and International Trade: A Literature Review," CESifo Working Paper Series 3868, CESifo Group Munich.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wendy Shamier).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.