Do Multilateral Trade Linkages Explain Bilateral Real Exchange Rate Volatility?
AbstractThis paper investigates the impact of multilateral trade linkages on bilateral real exchange rate volatility by examining a particular channel —the extent of the e?ects of di?erences on import intensities (GDP’s share of imports of a given product and origin) between trade part- ners—of long-run real exchange rate volatility. I exploit a large panel of cross-country data over the years 1970–97 and construct a micro-founded index to capture this e?ect. In the estima- tions I address carefully endogeneity issues by testing not just exogeneity but also the presence of weak instruments. As robustness check and under the latter I estimate LIML and Fuller(1) regressions to ensure unbiased coe?cients. Results strongly support the hypothesis that a pair of countries with a larger di?erence in the import intensities from the rest of the world faces a larger bilateral real exchange rate volatility. This result turns to be robust to the inclusion of bilateral trade a commonly argued moderator of volatility and other controls. These empirical ?ndings are consistent with recent international trade models that highlight multi-country trade linkages.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Chile, Department of Economics in its series Working Papers with number wp304.
Date of creation: Nov 2009
Date of revision:
Other versions of this item:
- Claudio Bravo-Ortega, 2013. "Do Multilateral Trade Linkages Explain Bilateral Real Exchange Rate Volatility?," Working Papers wp377, University of Chile, Department of Economics.
- F30 - International Economics - - International Finance - - - General
- F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- James H. Stock & Motohiro Yogo, 2002. "Testing for Weak Instruments in Linear IV Regression," NBER Technical Working Papers 0284, National Bureau of Economic Research, Inc.
- Byrne, Joseph P. & Darby, Julia & MacDonald, Ronald, 2008.
"US trade and exchange rate volatility: A real sectoral bilateral analysis,"
Journal of Macroeconomics,
Elsevier, vol. 30(1), pages 238-259, March.
- Joseph P. Byrne & Julia Darby & Ronald MacDonald, 2006. "US Trade and Exchange Rate Volatility: A Real Sectoral Bilateral Analysis," Working Papers 2006_9, Business School - Economics, University of Glasgow.
- Berthelon, Matias & Freund, Caroline, 2008.
"On the conservation of distance in international trade,"
Journal of International Economics,
Elsevier, vol. 75(2), pages 310-320, July.
- Berthelon, Matias & Freund, Caroline, 2004. "On the conservation of distance in international trade," Policy Research Working Paper Series 3293, The World Bank.
- Robert J. Hodrick & Edward Prescott, 1981.
"Post-War U.S. Business Cycles: An Empirical Investigation,"
451, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(1), pages 1-16, February.
- Kose, M. Ayhan & Yi, Kei-Mu, 2006.
"Can the standard international business cycle model explain the relation between trade and comovement?,"
Journal of International Economics,
Elsevier, vol. 68(2), pages 267-295, March.
- Kei-Mu Yi & M. Ayhan Kose, 2005. "Can the Standard International Business Cycle Model Explain the Relation Between Trade and Comovement?," IMF Working Papers 05/204, International Monetary Fund.
- M. Ayhan Kose & Kei-Mu Yi, 2005. "Can the standard international business cycle model explain the relation between trade and comovement?," Working Papers 05-3, Federal Reserve Bank of Philadelphia.
- Kei-Mu Yi, 2000.
"Can vertical specialization explain the growth of world trade?,"
96, Federal Reserve Bank of New York.
- Kei-Mu Yi, 2003. "Can Vertical Specialization Explain the Growth of World Trade?," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 52-102, February.
- Fitzgerald, Doireann, 2008. "Can trade costs explain why exchange rate volatility does not feed into consumer prices?," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 606-628, April.
- Reinhart, Carmen & Rogoff, Kenneth, 2004.
"The modern history of exchange rate arrangements: A reinterpretation,"
14070, University Library of Munich, Germany.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 1-48, February.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2002. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," NBER Working Papers 8963, National Bureau of Economic Research, Inc.
- International Monetary Fund, 2005.
"Remoteness and Real Exchange Rate Volatility,"
IMF Working Papers
05/01, International Monetary Fund.
- Bouoiyour, Jamal & REY, Serge, 2005.
"Exchange Rate Regime, Real Exchange Rate, Trade Flows and Foreign Direct Investments: The case of Morocco,"
38643, University Library of Munich, Germany.
- Jamal Bouoiyour & Serge Rey, 2005. "Exchange Rate Regime, Real Exchange Rate, Trade Flows and Foreign Direct Investments: The Case of Morocco," African Development Review, African Development Bank, vol. 17(2), pages 302-334.
- Ricardo Hausmann & Ugo Panizza & Roberto Rigobon, 2004.
"The Long-Run Volatility Puzzle of the Real Exchange Rate,"
NBER Working Papers
10751, National Bureau of Economic Research, Inc.
- Hausmann, Ricardo & Panizza, Ugo & Rigobon, Roberto, 2006. "The long-run volatility puzzle of the real exchange rate," Journal of International Money and Finance, Elsevier, vol. 25(1), pages 93-124, February.
- Michael W. Klein & Jay C. Shambaugh, 2004.
"Fixed Exchange Rates and Trade,"
NBER Working Papers
10696, National Bureau of Economic Research, Inc.
- Mohsen Bahmani-Oskooee & Scott W. Hegerty, 2007. "Exchange rate volatility and trade flows: a review article," Journal of Economic Studies, Emerald Group Publishing, vol. 34(3), pages 211-255, September.
- Bagella, Michele & Becchetti, Leonardo & Hasan, Iftekhar, 2004. "The anticipated and concurring effects of the EMU: exchange rate volatility, institutions and growth," Journal of International Money and Finance, Elsevier, vol. 23(7-8), pages 1053-1080.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Federico Huneeus).
If references are entirely missing, you can add them using this form.