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Investigating Non-Linearities in the Relationship Between Real Exchange Rate Volatility and Agricultural Trade

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Author Info

  • Jean-Philippe Gervais

    (CRÉA, Laval University)

  • Bruno Larue

    (CRÉA, Laval University)

  • Olivier Bonroy

    (CRÉA, Laval University)

Abstract

The article analyzes production and marketing lags in agri-food supply chains that force competitive producers and processors to commit to output targets before prices and exchange rates are realized. We show that export markets act as put options for exporters and an increase in the volatility of the real exchange rate will generally increase exports. Relaxing the assumptions about the real exchange rate distribution and risk preferences of producers and/or processors can introduce non-linearities in the relationship between exports and real exchange rate volatility. This relationship is investigated using the flexible non-linear inference framework of Hamilton (2001). Bilateral export equations for Canadian pork exports to the U.S. and Japan are specified. The empirical model shows that real exchange rate volatility has statistically significant non-linear effects on aggregate pork exports. Moreover, bilateral pork exports are less sensitive to country- specific variables than aggregate volatility in the real exchange rate.

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Bibliographic Info

Paper provided by EconWPA in its series International Trade with number 0407004.

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Length: 34 pages
Date of creation: 13 Jul 2004
Date of revision:
Handle: RePEc:wpa:wuwpit:0407004

Note: Type of Document - pdf; pages: 34
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Web page: http://128.118.178.162

Related research

Keywords: Real exchange rate volatility; non-linear flexible inference; production lags; pork exports;

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References

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Cited by:
  1. 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.

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