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On the Sensitivity of the Volume and Volatility of Bilateral Trade Flows to Exchange Rate Uncertainty

Author

Listed:
  • Christopher F. Baum

    (Boston College
    DIW Berlin)

  • Mustafa Caglayan

    (University of Sheffield)

Abstract

We present an empirical investigation of the hypotheses that exchange rate volatility may have an impact on both the volume and variability of trade flows by considering a broad set of industrial countries' bilateral real trade flows over the period 1980-1998. Similar to the findings of earlier theoretical and empirical research, our first set of results shows that the impact of exchange rate uncertainty on trade flows is indeterminate. Our second set of results provides new and novel findings that exchange rate volatility has a consistent positive and significant effect on the volatility of bilateral trade flows, helping us better understand macroeconomic volatility.

Suggested Citation

  • 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.
    • Handle: RePEc:boc:bocoec:641
    Note: previously circulated as "Effects of Exchange Rate Volatility on the Volume and Volatility of Bilateral Exports"
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    exchange rates; volatility; fractional integration; trade flows;
    All these keywords.

    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; Dynamic Treatment Effect Models; Diffusion Processes

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