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Real & Nominal Foreign Exchange Volatility Effects on Exports – The Importance of Timing

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  • Cotter, John

Abstract

This paper compares real and nominal foreign exchange volatility effects on exports. Using a flexible lag version of the Goldstein-Khan two-country imperfect substitutes model for bilateral trade, we identify the overall effect into both a timing as well as a size impact. We find that the size impact of forecasted foreign exchange volatility does not vary according to the measure used in terms of magnitude and direction. However, there are very different timing effects, when we compare real and nominal foreign exchange rate volatility.

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File URL: http://mpra.ub.uni-muenchen.de/3494/
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3494.

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Date of creation: 2006
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Handle: RePEc:pra:mprapa:3494

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  1. Franc Klaassen, 2000. "Why is it so Difficult to Find an Effect of Exchange Rate Risk on Trade?," Econometric Society World Congress 2000 Contributed Papers, Econometric Society 0133, Econometric Society.
  2. Thursby, Jerry G & Thursby, Marie C, 1987. "Bilateral Trade Flows, the Linder Hypothesis, and Exchange Risk," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 488-95, August.
  3. Christopher F. Baum & Mustafa Caglayan & Neslihan Ozkan, 2004. "Nonlinear effects of exchange rate volatility on the volume of bilateral exports," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 19(1), pages 1-23.
  4. Franke, Gunter, 1991. "Exchange rate volatility and international trading strategy," Journal of International Money and Finance, Elsevier, Elsevier, vol. 10(2), pages 292-307, June.
  5. 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.
  6. Goffe, William L. & Ferrier, Gary D. & Rogers, John, 1994. "Global optimization of statistical functions with simulated annealing," Journal of Econometrics, Elsevier, Elsevier, vol. 60(1-2), pages 65-99.
  7. Goldstein, Morris & Khan, Mohsin S., 1985. "Income and price effects in foreign trade," Handbook of International Economics, Elsevier, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 20, pages 1041-1105 Elsevier.
  8. Fountas, Stilianos & Aristotelous, Kyriacos, 1999. "Has the European Monetary System led to more exports? Evidence from four European Union countries," Economics Letters, Elsevier, Elsevier, vol. 62(3), pages 357-363, March.
  9. McKenzie, Michael D, 1999. " The Impact of Exchange Rate Volatility on International Trade Flows," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 13(1), pages 71-106, February.
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