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The Volatility of International Trade Flows and Exchange Rate Uncertainty

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  • Christopher F. Baum

    ()
    (Boston College
    DIW Berlin)

  • Mustafa Caglayan

    (University of Sheffield)

Abstract

Empirical evidence obtained from data covering Eurozone countries, other industrialized countries, and newly industrialized countries (NICs) over 1980–2006 shows that exchange rate uncertainty has a consistent positive and significant effect on the volatility of bilateral trade flows. A one standard deviation increase in exchange rate uncertainty leads to an eight per cent increase in trade volatility. These effects differ markedly for trade flows between industrialized countries and NICs, and are not mitigated by the presence of the Eurozone. Contrary to earlier findings, our results also suggest that exchange rate uncertainty does not affect the volume of trade flows of either industrialized countries or NICs.

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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 695.

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Date of creation: 27 Nov 2008
Date of revision:
Handle: RePEc:boc:bocoec:695

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Keywords: exchange rates; uncertainty; volatility; trade flows; industrialized countries; Eurozone; newly industrialized countries;

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References

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  1. Mustafa Caglayan & Jing Di, 2008. "Does Real Exchange Rate Volatility Affect Sectoral Trade Flows?," Working Papers 2008011, The University of Sheffield, Department of Economics, revised Sep 2008.
  2. 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.
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Cited by:
  1. 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.

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