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Nonlinear Effects of Exchange Rate Volatility on the Volume of Bilateral Exports

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Author Info
Christopher F. Baum () (Boston College, DIW Berlin)
Mustafa Caglayan (University of Sheffield)
Neslihan Ozkan () (University of Bristol)

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Abstract

In this paper, we empirically investigate the impact of exchange rate volatility on real international trade flows utilizing a 13-country dataset of monthly bilateral real exports for 1980--1998. We compute one-month-ahead exchange rate volatility from the intra--monthly variations in the exchange rate to better quantify this latent variable. We find that the effect of exchange rate volatility on trade flows is nonlinear, depending on its interaction with the importing country's volatility of economic activity, and that it varies considerably over the set of country pairs considered.

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Publisher Info
Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 488.

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Length: 39 pages
Date of creation: 28 Dec 2000
Date of revision: 30 Jul 2002
Publication status: Published, Journal of Applied Econometrics, 19:1-23, 2004
Handle: RePEc:boc:bocoec:488

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Related research
Keywords: exchange rates; volatility; trade flows;

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Find related papers by JEL classification:
F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
F31 - International Economics - - International Finance - - - Foreign Exchange
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions

References listed on IDEAS
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.:

  1. Koray, Faik & Lastrapes, William D, 1989. "Real Exchange Rate Volatility and U.S. Bilateral Trade: A VAR Approach," The Review of Economics and Statistics, MIT Press, vol. 71(4), pages 708-12, November. [Downloadable!] (restricted)
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    Other versions:
  4. Merton, Robert C., 1980. "On estimating the expected return on the market : An exploratory investigation," Journal of Financial Economics, Elsevier, vol. 8(4), pages 323-361, December. [Downloadable!] (restricted)
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  5. French, Kenneth R. & Schwert, G. William & Stambaugh, Robert F., 1987. "Expected stock returns and volatility," Journal of Financial Economics, Elsevier, vol. 19(1), pages 3-29, September. [Downloadable!] (restricted)
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  10. Viaene, Jean-Marie & de Vries, Casper G., 1992. "International trade and exchange rate volatility," European Economic Review, Elsevier, vol. 36(6), pages 1311-1321, August. [Downloadable!] (restricted)
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  11. Victoria S. Farrell & Dean A. DeRosa & T. Ashby McCown, 1983. "Effects of exchange rate variability on international trade and other economic variables : a review of the literature," Staff Studies 130, Board of Governors of the Federal Reserve System (U.S.).
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    Other versions:
  14. repec:pal:imfstp:v:46:y:1999:i:3:p:5 is not listed on IDEAS
    Other versions:
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    Other versions:
  23. 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. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, 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.)

  1. Christopher F. Baum & Mustafa Caglayan & Oleksandr Talavera, 2006. "Firm Investment and Financial Frictions," Discussion Papers of DIW Berlin 634, DIW Berlin, German Institute for Economic Research. [Downloadable!]
  2. Chit, Myint Moe & Rizov, Marian & Willenbockel, Dirk, 2008. "Exchange Rate Volatility and Exports: New Empirical Evidence from the Emerging East Asian Economies," MPRA Paper 9014, University Library of Munich, Germany. [Downloadable!]
  3. Christopher F Baum & Mustafa Caglayan, 2007. "Effects of Exchange Rate Volatility on the Volume and Volatility of Bilateral Exports," Money Macro and Finance (MMF) Research Group Conference 2006 64, Money Macro and Finance Research Group. [Downloadable!]
  4. Olivier Bonroy & Jean-Philippe Gervais & Bruno Larue, 2005. "Investigating Non-Linearities in the Relationship Between Real Exchange Rate Volatility and Trade," International Finance 0501003, EconWPA. [Downloadable!]
  5. Juraj Stančík, 2007. "Determinants of Exchange-Rate Volatility: The Case of the New EU Members," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 57(9-10), pages 414-432, October. [Downloadable!]
  6. Christopher F. Baum & Mustafa Caglayan & Oleksandr Talavera, 2008. "On the Investment Sensitivity of Debt under Uncertainty," Boston College Working Papers in Economics 686, Boston College Department of Economics. [Downloadable!]
  7. Joseph P. Byrne & Julia Darby & Ronald MacDonald, 2006. "US Trade and Exchange Rate Volatility: A Real Sectoral Bilateral Analysis," Working Papers 2006_9, Department of Economics, University of Glasgow. [Downloadable!]
    Other versions:
  8. Christopher F. Baum & Mustafa Caglayan & Oleksandr Talavera, 2006. "Uncertainty Determinants of Firm Investment," Boston College Working Papers in Economics 646, Boston College Department of Economics, revised 24 Feb 2007. [Downloadable!]
    Other versions:
  9. Christopher F. Baum & Mustafa Caglayan & Neslihan Ozkan, 2004. "Re-examining the Transmission of Monetary Policy: What More Do a Million Observations Have to Say," Money Macro and Finance (MMF) Research Group Conference 2004 45, Money Macro and Finance Research Group. [Downloadable!]
  10. Helmut Herwartz & Henning Weber, 2007. "Exchange Rate Uncertainty and Trade Growth - A Comparison of Linear and Nonlinear (Forecasting) Models," SFB 649 Discussion Papers SFB649DP2007-042, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
  11. Toseef Azid & Muhammad Jamil & Aneela Kousar, 2005. "Impact of Exchange rate Volatility on Growth and Economic Performance: A Case Study of Pakistan, 1973-2003," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 44(4), pages 749-775. [Downloadable!]
  12. Jean-Philippe Gervais & Bruno Larue & Olivier Bonroy, 2004. "Investigating Non-Linearities in the Relationship Between Real Exchange Rate Volatility and Agricultural Trade," International Trade 0407004, EconWPA. [Downloadable!]
  13. Cotter, John, 2006. "Real & Nominal Foreign Exchange Volatility Effects on Exports – The Importance of Timing," MPRA Paper 3494, University Library of Munich, Germany. [Downloadable!]
  14. Christopher F. Baum & Mustafa Caglayan & Neslihan Ozkan, 2003. "The role of uncertainty in the transmission of monetary policy effects on bank lending," Boston College Working Papers in Economics 561, Boston College Department of Economics, revised 28 Apr 2008. [Downloadable!]
  15. Cotter, John & Bredin, Don, 2005. "Volatility and Irish Exports," MPRA Paper 3522, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  16. 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. [Downloadable!]
  17. Christopher F. Baum & Mustafa Caglayan, 2006. "On the Sensitivity of the Volume and Volatility of Bilateral Trade Flows to Exchange Rate Uncertainty," Boston College Working Papers in Economics 641, Boston College Department of Economics, revised 06 Feb 2008. [Downloadable!]
  18. Aliyu, Shehu Usman Rano, 2008. "Exchange Rate Volatility and Export Trade in Nigeria: An Empirical Investigation," MPRA Paper 13490, University Library of Munich, Germany, revised 17 Feb 2009. [Downloadable!]
  19. Christopher F. Baum & Mustafa Caglayan & Oleksandr Talavera, 2006. "On the Sensitivity of Firms' Investment to Cash Flow and Uncertainty," Boston College Working Papers in Economics 638, Boston College Department of Economics, revised 26 Apr 2008. [Downloadable!]
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