The link between exchange rate uncertainty and Israeli exports to the US: 2SLS and cointegration approaches
AbstractAlthough the effect of uncertainty on economic behavior is of primary concern to both economists and policymakers, its theoretical and empirical treatment in the literature has led to inconclusive results. Indeed, the results of the various empirical studies are highly dependent on the statistical method employed and the proxy used for uncertainty. Using quarterly data for the period 1997-2010:1, this study examines the effect of exchange rate uncertainty on Israeli exports of goods to the US and finds support for the hypothesis that uncertainty has a negative and dominant effect on exports, in both the short run and the long run. Two important contributions are made to the empirical literature: the use of 2SLS in order to address the problem of simultaneity between the exchange rate and exports in this context and the testing of three uncertainty proxies. The use of Israeli data is also relevant to the empirical evidence for developed countries, since Israeli exports of goods to the US consist primarily of products with high value added in production. Contrary to theoretical claims in the literature, having a large proportion of high-value-added goods does not appear to significantly reduce the negative effect of uncertainty.
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.
Bibliographic InfoArticle provided by Elsevier in its journal Research in Economics.
Volume (Year): 65 (2011)
Issue (Month): 2 (June)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/622941
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.:
- Choudhry, Taufiq, 2005. "Exchange rate volatility and the United States exports: evidence from Canada and Japan," Journal of the Japanese and International Economies, Elsevier, vol. 19(1), pages 51-71, March.
- Asseery, A. & Peel, D. A., 1991. "The effects of exchange rate volatility on exports : Some new estimates," Economics Letters, Elsevier, vol. 37(2), pages 173-177, October.
- Arize, Augustine C. & Osang, Thomas & Slottje, Daniel J., 2008. "Exchange-rate volatility in Latin America and its impact on foreign trade," International Review of Economics & Finance, Elsevier, vol. 17(1), pages 33-44.
- Dixit, Avinash K, 1989.
"Entry and Exit Decisions under Uncertainty,"
Journal of Political Economy,
University of Chicago Press, vol. 97(3), pages 620-38, June.
- John Barkoulas & Christopher F. Baum & Mustafa Caglayan, 1998.
"Exchange Rate Effects on the Volume and Variability of Trade Flows,"
Boston College Working Papers in Economics
405., Boston College Department of Economics, revised 12 Sep 2001.
- Barkoulas, John T. & Baum, Christopher F. & Caglayan, Mustafa, 2002. "Exchange rate effects on the volume and variability of trade flows," Journal of International Money and Finance, Elsevier, vol. 21(4), pages 481-496, August.
- Caglayan, M. & Baum, C.F. & Barkoulas, J.T., 1998. "Exchange Rate Effects on the Volume and Variability of Trade Flows," Papers 1998/05, Koc University.
- 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.
- 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.
- Franc Klaassen, 2000.
"Why is it so Difficult to Find an Effect of Exchange Rate Risk on Trade?,"
Econometric Society World Congress 2000 Contributed Papers
0133, Econometric Society.
- Klaassen, Franc, 2004. "Why is it so difficult to find an effect of exchange rate risk on trade?," Journal of International Money and Finance, Elsevier, vol. 23(5), pages 817-839, September.
- Klaassen, F.J.G.M., 1999. "Why is it so Difficult to Find An Effect of Exchange Rate Risk on Trade?," Discussion Paper 1999-73, Tilburg University, Center for Economic Research.
- McKenzie, Michael D, 1999. " The Impact of Exchange Rate Volatility on International Trade Flows," Journal of Economic Surveys, Wiley Blackwell, vol. 13(1), pages 71-106, February.
- Qian, Ying & Varangis, Panos, 1994. "Does Exchange Rate Volatility Hinder Export Growth?," Empirical Economics, Springer, vol. 19(3), pages 371-96.
- McKenzie, Michael D. & Brooks, Robert D., 1997. "The impact of exchange rate volatility on German-US trade flows," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 7(1), pages 73-87, April.
- Leonardo Iacovone & BeataS. Javorcik, 2010. "Multi-Product Exporters: Product Churning, Uncertainty and Export Discoveries," Economic Journal, Royal Economic Society, vol. 120(544), pages 481-499, 05.
- P�l Boug & Andreas Fagereng, 2007.
"Exchange rate volatility and export performance: A cointegrated VAR approach,"
522, Research Department of Statistics Norway.
- P�l Boug & Andreas Fagereng, 2010. "Exchange rate volatility and export performance: a cointegrated VAR approach," Applied Economics, Taylor & Francis Journals, vol. 42(7), pages 851-864.
- Olugbenga Onafowora & Oluwole Owoye, 2008. "Exchange rate volatility and export growth in Nigeria," Applied Economics, Taylor & Francis Journals, vol. 40(12), pages 1547-1556.
- Mohsen Bahmani-Oskooee, 2002. "Does black market exchange rate volatility deter the trade flows? Iranian experience," Applied Economics, Taylor & Francis Journals, vol. 34(18), pages 2249-2255.
- Taufiq Choudhry, 2008. "Exchange rate volatility and United Kingdom trade: evidence from Canada, Japan and New Zealand," Empirical Economics, Springer, vol. 35(3), pages 607-619, November.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If references are entirely missing, you can add them using this form.