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Short-Run and Long-Run Effects of Exchange Rate Volatility on the Volume of Exports: A Case Study for Pakistan

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Author Info

  • A. Aurangzeb

    (Department of Economics, University of Guelph, Canada and Social Policy and Development Centre, Pakistan)

  • Thanasis Stengos

    (Department of Economics, University of Guelph, Canada)

  • Asif U. Mohammad

    (Social Policy and Development Centre, Pakistan)

Abstract

This paper investigates empirically the impact of exchange rate volatility on Pakistan's exports to its major trading partners under the floating exchange rate regime for the period 1985 to 2001. Estimates of the co-integrating relations are obtained using Johansen's technique, and estimates of the short-run dynamics are obtained utilizing an error-correction model. The major findings indicate that increases in exchange rate volatility approximated by the conditional variance of exchange rates exert a significant negative effect upon the volume of exports in the short-run.

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Bibliographic Info

Article provided by College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan in its journal International Journal of Business and Economics.

Volume (Year): 4 (2005)
Issue (Month): 3 (December)
Pages: 209-222

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Handle: RePEc:ijb:journl:v:4:y:2005:i:3:p:209-222

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Related research

Keywords: ARCH; exchange rate volatility; exports; error-correction model;

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References

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  1. Pagan, Adrian R. & Schwert, G. William, 1990. "Alternative models for conditional stock volatility," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 267-290.
  2. Giovannini, Alberto, 1988. "Exchange rates and traded goods prices," Journal of International Economics, Elsevier, vol. 24(1-2), pages 45-68, February.
  3. Caines, P. E. & Keng, C. W. & Sethi, S. P., 1981. "Causality analysis and multivariate Autoregressive modelling with an application to supermarket sales analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 3(1), pages 267-298, November.
  4. Cushman, David O., 1988. "U.S. bilateral trade flows and exchange risk during the floating period," Journal of International Economics, Elsevier, vol. 24(3-4), pages 317-330, May.
  5. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  6. Kumar, Ramesh & Dhawan, Ravinder, 1991. "Exchange rate volatility and Pakistan's exports to the developed world, 1974-85," World Development, Elsevier, vol. 19(9), pages 1225-1240, September.
  7. 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.
  8. Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
  9. Franke, Gunter, 1991. "Exchange rate volatility and international trading strategy," Journal of International Money and Finance, Elsevier, vol. 10(2), pages 292-307, June.
  10. Cushman, David O., 1983. "The effects of real exchange rate risk on international trade," Journal of International Economics, Elsevier, vol. 15(1-2), pages 45-63, August.
  11. 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.
  12. Chowdhury, Abdur R, 1993. "Does Exchange Rate Volatility Depress Trade Flows? Evidence from Error-Correction Models," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 700-706, November.
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Cited by:
  1. Algieri, Bernardina & Aquino, Antonio & Succurro, Marianna, 2011. "Going “green”: trade specialisation dynamics in the solar photovoltaic sector," Energy Policy, Elsevier, vol. 39(11), pages 7275-7283.

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