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To What Extent Do Exchange Rates and their Volatility Affect Trade?

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  • Marilyne Huchet-Bourdon
  • Jane Korinek

Abstract

Trade deficits and surpluses are sometimes attributed to intentionally low or high exchange rate levels. The impact of exchange rate levels on trade has been much debated but the large body of existing empirical literature does not suggest an unequivocally clear picture of the trade impacts of changes in exchange rates. The impact of exchange rate volatility on trade also does not benefit from a clear theoretical cause-effect relationship. This study examines the impact of exchange rates and their volatility on trade flows in China, the Euro area and the United States in two broadly defined sectors, agriculture on the one hand and manufacturing and mining on the other. It finds that exchange volatility impacts trade flows only slightly. Exchange rate levels, on the other hand, affect trade in both agriculture and manufacturing and mining sectors but do not explain in their entirety the trade imbalances in the three countries examined.

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Bibliographic Info

Paper provided by OECD Publishing in its series OECD Trade Policy Papers with number 119.

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Date of creation: 10 Oct 2011
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Handle: RePEc:oec:traaab:119-en

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Keywords: exchange rates; trade; euro; real exchange rates; trade in agriculture; short-run effects; long-run effects; GARCH volatility; depreciation; US dollar; exchange rate appreciation; yuan; currency movements; exchange hedging; volatility; trade deficit;

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Cited by:
  1. Marilyne Huchet Bourdon & Catherine Laroche Dupraz & Anned-Linz Sénadin, 2013. "Impact du taux de change sur la sécurité alimentaire des pays en développement," Working Papers SMART - LERECO 13-10, INRA UMR SMART.
  2. Pomfret, Richard & Pontines, Victor, 2013. "Exchange Rate Policy and Regional Trade Agreements: A Case of Conflicted Interests?," ADBI Working Papers 436, Asian Development Bank Institute.
  3. Enzo Cassino & David Oxley, 2013. "How Does the Exchange Rate Affect the Real Economy? A Literature Survey," Treasury Working Paper Series 13/26, New Zealand Treasury.

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