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Exchange Rate Effects on the Volume and Variability of Trade Flows

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  • Caglayan, M.
  • Baum, C.F.
  • Barkoulas, J.T.

Abstract

This paper investigates the effects of exchange rate uncertainty on the volume and variability of trade flows. Employing a signal extraction framework, we show that the direction and magnitude of importers' and exporters' optimal trading activities depend upon the source of the uncertainty (general economic shocks, fundamental factors driving the exchange rate process, or noise in the signal of policy innovations), providing a rationale for the contradictory empirical evidence in the literature.

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Bibliographic Info

Paper provided by Koc University in its series Papers with number 1998/05.

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Length: 28 pages
Date of creation: 1998
Date of revision:
Handle: RePEc:fth:kocuni:1998/05

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Keywords: EXCHANGE RATE ; TRADE;

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References

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  1. Martin D. D. Evans & Richard K. Lyons, 2002. "Order Flow and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 110(1), pages 170-180, February.
  2. Peree, Eric & Steinherr, Alfred, 1989. "Exchange rate uncertainty and foreign trade," European Economic Review, Elsevier, vol. 33(6), pages 1241-1264, July.
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  5. Nelson Mark & Donggyu Sul, 1998. "Norminal Exchange Rates and Monetary Fundamentals: Evidence from a Small Post-Bretton Woods Panel," Working Papers 98-19, Ohio State University, Department of Economics.
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  8. 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.
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  10. Sercu, Piet & Vanhulle, Cynthia, 1992. "Exchange rate volatility, international trade, and the value of exporting firms," Journal of Banking & Finance, Elsevier, vol. 16(1), pages 155-182, February.
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  13. 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.
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Citations

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Cited by:
  1. Jan M. Podivinsky & Chongcheul Cheong & Maozu Lu, 2004. "The Effect of Exchange Rate Uncertainty on US Imports from the UK: Consistent OLS Estimation with Volatility Measured by An ARCH-type Model," Econometric Society 2004 Australasian Meetings 212, Econometric Society.
  2. Arize, Augustine C. & Osang, Thomas & Slottje, Daniel J., 2008. "Exchange-rate volatility in Latin America and its impact on foreign trade," International Review of Economics & Finance, Elsevier, vol. 17(1), pages 33-44.
  3. Goudarzi, Mostafa & Khanarinejad, Komeil & Ardakani, Zahra, 2012. "Investigation the Role of Exchange Rate Volatility on Iran's Agricultural Exports (Case Study: Date, Pistachio and Saffron)," AGRIS on-line Papers in Economics and Informatics, Czech University of Life Sciences Prague, Faculty of Economics and Management, vol. 4(1), March.
  4. Katheryn Russ, 2012. "Exchange rate volatility and first-time entry by multinational firms," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 148(2), pages 269-295, June.
  5. WenShwo Fang & YiHao Lai & Stephen M. Miller, 2005. "Does Exchange Rate Risk Affect Exports Asymmetrically? Asian Evidence," Working papers 2005-09, University of Connecticut, Department of Economics.
  6. Sam Cameron & Khair-uz-Zaman, 2006. "Export Function Estimates for the Pakistan Carpet Industry," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 45(4), pages 1287-1297.
  7. Longjiang, Chen, 2009. "The Effect of China's RMB Exchange Rate Movement on Its Agricultural Export: A Case Study of Export to Japan," 2009 Conference, August 16-22, 2009, Beijing, China 49995, International Association of Agricultural Economists.
  8. Mustafa Caglayan & Omar S. Dahi & Firat Demir, 2010. "Trade Flows, Exchange Rate Uncertainty and Financial Depth: Evidence from 28 Emerging Countries," Working Papers 2010011, The University of Sheffield, Department of Economics, revised May 2010.
  9. Russ, Katheryn, 2004. "The Endogeneity of the Exchange Rate as a Determinant of FDI: A Model of Money, Entry, and Multinational Firms," Santa Cruz Department of Economics, Working Paper Series qt9xr4f238, Department of Economics, UC Santa Cruz.
  10. Zelekha, Yaron & Bar-Efrat, Ohad, 2011. "The link between exchange rate uncertainty and Israeli exports to the US: 2SLS and cointegration approaches," Research in Economics, Elsevier, vol. 65(2), pages 100-109, June.
  11. Russ, Katheryn Niles, 2007. "The endogeneity of the exchange rate as a determinant of FDI: A model of entry and multinational firms," Journal of International Economics, Elsevier, vol. 71(2), pages 344-372, April.
  12. 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.
  13. 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.
  14. David Kihangire, 2005. "The Effects Of Exchange Rate Variability On Exports: Evidence From Uganda (1988 – 2001)," International Trade 0505013, EconWPA.
  15. 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.
  16. Juan Piñeiro Chousa, & Artur Tamazian, & Davit N. Melikyan,, 2008. "MARKET RISK DYNAMICS AND COMPETITIVENESS AFTER THE EURO: Evidence from EMU Members," William Davidson Institute Working Papers Series wp916, William Davidson Institute at the University of Michigan.
  17. Longjiang Chen, 2011. "The effect of China's RMB exchange rate movement on its agricultural export: A case study of export to Japan," China Agricultural Economic Review, Emerald Group Publishing, vol. 3(1), pages 26-41, January.
  18. Margherita Gerolimetto & Isabella Procidano, 2008. "A test for fractional cointegration using the sieve bootstrap," Statistical Methods and Applications, Springer, vol. 17(3), pages 373-391, July.
  19. Cavoli, Tony, 2009. "Is fear of floating justified?: The East Asia experience," Journal of Policy Modeling, Elsevier, vol. 31(1), pages 1-16.

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