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Short-Run and Long-Run Effects of Exchange Rate Volatility on the Volume of Exports: A Case Study for Pakistan

  • A. Aurangzeb

    (Department of Economics, University of Guelph, Canada and Social Policy and Development Centre, Pakistan)

  • Thanasis Stengos

    (Department of Economics, University of Guelph, Canada)

  • Asif U. Mohammad

    (Social Policy and Development Centre, Pakistan)

This paper investigates empirically the impact of exchange rate volatility on Pakistan's exports to its major trading partners under the floating exchange rate regime for the period 1985 to 2001. Estimates of the co-integrating relations are obtained using Johansen's technique, and estimates of the short-run dynamics are obtained utilizing an error-correction model. The major findings indicate that increases in exchange rate volatility approximated by the conditional variance of exchange rates exert a significant negative effect upon the volume of exports in the short-run.

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Article provided by College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan in its journal International Journal of Business and Economics.

Volume (Year): 4 (2005)
Issue (Month): 3 (December)
Pages: 209-222

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Handle: RePEc:ijb:journl:v:4:y:2005:i:3:p:209-222
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  1. Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
  2. Cushman, David O., 1988. "U.S. bilateral trade flows and exchange risk during the floating period," Journal of International Economics, Elsevier, vol. 24(3-4), pages 317-330, May.
  3. Franke, Gunter, 1991. "Exchange rate volatility and international trading strategy," Journal of International Money and Finance, Elsevier, vol. 10(2), pages 292-307, June.
  4. Giovannini, Alberto, 1988. "Exchange rates and traded goods prices," Journal of International Economics, Elsevier, vol. 24(1-2), pages 45-68, February.
  5. Pagan, Adrian R. & Schwert, G. William, 1990. "Alternative models for conditional stock volatility," Journal of Econometrics, Elsevier, vol. 45(1-2), pages 267-290.
  6. Caines, P. E. & Keng, C. W. & Sethi, S. P., 1981. "Causality analysis and multivariate Autoregressive modelling with an application to supermarket sales analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 3(1), pages 267-298, November.
  7. Kroner, Kenneth F. & Lastrapes, William D., 1993. "The impact of exchange rate volatility on international trade: Reduced form estimates using the GARCH-in-mean model," Journal of International Money and Finance, Elsevier, vol. 12(3), pages 298-318, June.
  8. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
  9. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
  10. Chowdhury, Abdur R, 1993. "Does Exchange Rate Volatility Depress Trade Flows? Evidence from Error-Correction Models," The Review of Economics and Statistics, MIT Press, vol. 75(4), pages 700-706, November.
  11. Kumar, Ramesh & Dhawan, Ravinder, 1991. "Exchange rate volatility and Pakistan's exports to the developed world, 1974-85," World Development, Elsevier, vol. 19(9), pages 1225-1240, September.
  12. 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.
  13. Cushman, David O., 1983. "The effects of real exchange rate risk on international trade," Journal of International Economics, Elsevier, vol. 15(1-2), pages 45-63, August.
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