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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)

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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File URL: http://fmwww.bc.edu/EC-P/wp488.pdf
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Bibliographic 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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Phone: 617-552-3670
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Web page: http://fmwww.bc.edu/EC/
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Keywords: exchange rates; volatility; trade flows;

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References

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  1. Ethier, Wilfred, 1973. "International Trade and the Forward Exchange Market," American Economic Review, American Economic Association, vol. 63(3), pages 494-503, June.
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  17. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Paul Labys, 2001. "Modeling and Forecasting Realized Volatility," NBER Working Papers 8160, National Bureau of Economic Research, Inc.
  18. O. Cushman, David, 1986. "Has exchange risk depressed international trade? The impact of third-country exchange risk," Journal of International Money and Finance, Elsevier, vol. 5(3), pages 361-379, September.
  19. 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.
  20. 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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