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Does Real Exchange Rate Volatility Affect Sectoral Trade Flows?

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  • Mustafa Caglayan

    ()
    (Department of Economics, University of Sheffield, 9 Mappin Street, Sheffield S1 4DT, United Kingdom;)

  • Jing Di

    ()
    (Department of Economics, University of Sheffield, 9 Mappin Street, Sheffield S1 4DT, United Kingdom)

Abstract

This article investigates empirically the effect of real exchange rate volatility on sectoral bilateral trade flows between the United States and its top 13 trading partners. Our investigation also considers those effects on trade flows that may arise through changes in income volatility and the interaction between income and exchange rate volatilities. We provide evidence that (i) exchange rate volatility does not systematically affect sectoral trade flows, (ii) income volatility has little impact on trade flows, and (iii) the effect of the interaction term on trade flows is opposite that of exchange rate volatility, dampening its impact on trade flows.

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Bibliographic Info

Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 77 (2010)
Issue (Month): 2 (October)
Pages: 313-335

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Handle: RePEc:sej:ancoec:v:77:2:y:2010:p:313-335

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Web page: http://www.southerneconomic.org/
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Cited by:
  1. 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.
  2. Demir, Firat & Caglayan, Mustafa & Dahi, Omar S., 2012. "Trade flows, exchange rate uncertainty and financial depth: evidence from 28 emerging countries," MPRA Paper 37400, University Library of Munich, Germany.
  3. Maryline Huchet-Bourdon & J. Korinek, 2011. "To what extent do exchange rates and their volatility affect trade ?," Post-Print hal-00729403, HAL.
  4. Verheyen, Florian, 2011. "Bilateral exports from Euro Zone countries to the US: Does exchange rate variability play a role?," Center for European, Governance and Economic Development Research Discussion Papers 121, University of Goettingen, Department of Economics.
  5. Christopher F. Baum & Mustafa Caglayan, 2008. "The Volatility of International Trade Flows and Exchange Rate Uncertainty," Boston College Working Papers in Economics 695, Boston College Department of Economics.

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