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Who is hurt by dollar-euro volatility in the euro zone?

Author

Listed:
  • Mohsen Bahmani-Oskooee
  • Hanafiah Harvey

Abstract

Exchange rate volatility is said to have negative or positive effects on trade flows, depending on the degree of traders' risk aversion. However, due to changes in their expectations, the effects of exchange rate volatility on trade flows could be asymmetric. We add to this new asymmetry literature by investigating the impact of dollar-euro volatility on the U.S. trade flows with each of the 12 original members of the euro zone in order to identify members that are hurt by volatility. We find that trade flows of the U.S. with all members are affected by volatility asymmetrically in the short run. The short-run asymmetric effects last into long-run asymmetric effects in U.S. exports to nine of the 12 members and in U.S. imports from two members. Additional analysis revealed that increased exchange rate volatility will boost U.S. exports to Greece and U.S. imports from Austria and Portugal. On the other hand, decreased volatility will hurt U.S. exports to Greece and boost its exports to Italy, the Netherlands, and Portugal while having no long-run impact on U.S. imports from any partner.

Suggested Citation

  • Mohsen Bahmani-Oskooee & Hanafiah Harvey, 2019. "Who is hurt by dollar-euro volatility in the euro zone?," International Economics, CEPII research center, issue 159, pages 36-47.
  • Handle: RePEc:cii:cepiie:2019-q3-159-4
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    File URL: https://www.sciencedirect.com/science/article/pii/S211070171930023X
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    Cited by:

    1. Mohsen Bahmani-Oskooee & Augustine C. Arize & Ebere Ume Kalu, 2023. "On the asymmetric effects of exchange rate volatility on the U.S. Bilateral Trade with its 12 South American partners," Economic Change and Restructuring, Springer, vol. 56(2), pages 701-732, April.

    More about this item

    Keywords

    Dollar-euro volatility; Asymmetry; The US; Euro zone; Nonlinear ARDL;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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