Currency hedging and goods trade
A puzzle in empirical international finance is the difficulty in finding a large and negative effect of exchange rate volatility on international trade. A common explanation is the availability of hedging instruments. This paper examines the empirical validity of this explanation using data on over 1,000 country pairs. Which countries have currency hedging instruments is not perfectly observable. This paper deals with the problem by specifying an endogenous regime-switching regression. There are two main findings. First, there is no evidence in the data to support the validity of the hedging hypothesis. Second, for country pairs with large trade potential, exchange rate volatility deters goods trade to an extent much larger than that typically has been documented in the literature (without using the switching regression specification).
(This abstract was borrowed from another version of this item.)
If 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
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.:
- Viaene, Jean-Marie & de Vries, Casper G., 1992.
"International trade and exchange rate volatility,"
European Economic Review,
Elsevier, vol. 36(6), pages 1311-1321, August.
- Bélanger, Denis & Gutiérrez, Sylvia, 1990. "Impact de la variabilité des taux de change sur le commerce international," L'Actualité Economique, Société Canadienne de Science Economique, vol. 66(1), pages 65-83, mars.
- Jeffrey A. Frankel and Shang-Jin Wei., 1993.
"Emerging Currency Blocs,"
Center for International and Development Economics Research (CIDER) Working Papers
C93-026, University of California at Berkeley.
- Shang-Jin Wei & Jungshik Kim, 1997.
"The Big Players in the Foreign Exchange Market: Do They Trade on Information or Noise?,"
NBER Working Papers
6256, National Bureau of Economic Research, Inc.
- Wei, S.J. & Kim, J., 1999. "The Big Players in the Foreign Exchange Market: Do They Trade on Information or Noise?," Papers 5, Chicago - Graduate School of Business.
- Shang-Jin Wei & Jungshik Kim, 1999. "The Big Players in the Foreign Exchange Market: Do They Trade on Information or Noise?," CID Working Papers 5, Center for International Development at Harvard University.
- Stephen A. Ross, 1989. "Institutional Markets, Financial Marketing, and Financial Innovation," Journal of Finance, American Finance Association, vol. 44(3), pages 541-556, 07.
- Makin, John H, 1978. "Portfolio Theory and the Problem of Foreign Exchange Risk," Journal of Finance, American Finance Association, vol. 33(2), pages 517-34, May.
- Eldor, Rafael & Zilcha, Itzhak, 1987. "Discriminating Monopoly, Forward Markets and International Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(2), pages 459-68, June.
- Agathe Cote, . "Exchange Rate Volatility and Trade: A Survey," Working Papers 94-5, Bank of Canada.
- Ethier, Wilfred, 1973. "International Trade and the Forward Exchange Market," American Economic Review, American Economic Association, vol. 63(3), pages 494-503, June.
- Kawai, Masahiro & Zilcha, Itzhak, 1986. "International trade with forward-futures markets under exchange rate and price uncertainty," Journal of International Economics, Elsevier, vol. 20(1-2), pages 83-98, February.
- Alan V. Deardorff, 1995.
"Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?,"
NBER Working Papers
5377, National Bureau of Economic Research, Inc.
- Alan Deardorff, 1998. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Chapters, in: The Regionalization of the World Economy, pages 7-32 National Bureau of Economic Research, Inc.
- Deardorff, A.V., 1995. "Determinants of Bilateral Trade : Does Gravity Work in a Neoclassical World?," Papers 95-05, Michigan - Center for Research on Economic & Social Theory.
- Miller, Merton H., 1986. "Financial Innovation: The Last Twenty Years and the Next," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 21(04), pages 459-471, December.
- Joseph E. Gagnon, 1989.
"Exchange rate variability and the level of international trade,"
International Finance Discussion Papers
369, Board of Governors of the Federal Reserve System (U.S.).
- Gagnon, Joseph E., 1993. "Exchange rate variability and the level of international trade," Journal of International Economics, Elsevier, vol. 34(3-4), pages 269-287, May.
- Peter B. Clark, 1973. "Uncertainty, Exchange Risk, And The Level Of International Trade," Economic Inquiry, Western Economic Association International, vol. 11(3), pages 302-313, 09.
- Mankiw, N Gregory & Romer, David & Weil, David N, 1992.
"A Contribution to the Empirics of Economic Growth,"
The Quarterly Journal of Economics,
MIT Press, vol. 107(2), pages 407-37, May.
- Ross, Stephen A, 1989. " Institutional Markets, Financial Marketing, and Financial Innovation," Journal of Finance, American Finance Association, vol. 44(3), pages 541-56, July.
- O. Cushman, David, 1986. "Has exchange risk depressed international trade? The impact of third-country exchange risk," Journal of International Money and Finance, Elsevier, vol. 5(3), pages 361-379, September.
- Paul De Grauwe, 1988. "Exchange Rate Variability and the Slowdown in Growth of International Trade," IMF Staff Papers, Palgrave Macmillan, vol. 35(1), pages 63-84, March.
- Brada, Josef C & Mendez, Jose, 1988. "Exchange Rate Risk, Exchange Rate Regime and the Volume of International Trade," Kyklos, Wiley Blackwell, vol. 41(2), pages 263-80.
- Cuny, Charles J, 1993. "The Role of Liquidity in Futures Market Innovations," Review of Financial Studies, Society for Financial Studies, vol. 6(1), pages 57-78.
- Hooper, Peter & Kohlhagen, Steven W., 1978. "The effect of exchange rate uncertainty on the prices and volume of international trade," Journal of International Economics, Elsevier, vol. 8(4), pages 483-511, November.
- Deardoff, A.V., 1995. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," Working Papers 382, Research Seminar in International Economics, University of Michigan.
- Gary R. Saxonhouse, 1993. "Pricing Strategies and Trading Blocs in East Asia," NBER Chapters, in: Regionalism and Rivalry: Japan and the United States in Pacific Asia, pages 89-124 National Bureau of Economic Research, Inc.
- Deardorff, Alan V., 1984. "Testing trade theories and predicting trade flows," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 10, pages 467-517 Elsevier.
- Caballero, R. & Corbo, V., 1988. "Real Exchange Rate Uncertainty And Exports: Multi-Country Empirical Evidence," Discussion Papers 1988_12, Columbia University, Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:eee:eecrev:v:43:y:1999:i:7:p:1371-1394. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.