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Exchange Rate Fluctuations and Trade Flows: Evidence from the European Union

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  • Giovanni Dell'Ariccia

    (International Monetary Fund)

Abstract

This paper analyzes the effects of exchange rate volatility on bilateral trade flows. Through use of a gravity model and panel data from western Europe, exchange rate uncertainty is found to have a negative effect on international trade. The results seem to be robust with respect to the particular measures representing exchange rate uncertainty. Particular attention is reserved for problems of simultaneous causality, stemming from the endogenous behavior of monetary authorities. The negative correlation between trade and bilateral volatility remains significant after controlling for the simultaneity bias. Copyright 1999, International Monetary Fund

Suggested Citation

  • Giovanni Dell'Ariccia, 1999. "Exchange Rate Fluctuations and Trade Flows: Evidence from the European Union," IMF Staff Papers, Palgrave Macmillan, vol. 46(3), pages 1-5.
  • Handle: RePEc:pal:imfstp:v:46:y:1999:i:3:p:5
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    References listed on IDEAS

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    1. Lewis, W Arthur, 1980. "The Slowing Down of the Engine of Growth," American Economic Review, American Economic Association, pages 555-564.
    2. repec:bla:restud:v:57:y:1990:i:1:p:99-125 is not listed on IDEAS
    3. Carmen M. Reinhart, 1995. "Devaluation, Relative Prices, and International Trade: Evidence from Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 42(2), pages 290-312, June.
    4. Peter C. B. Phillips & Mico Loretan, 1991. "Estimating Long-run Economic Equilibria," Review of Economic Studies, Oxford University Press, vol. 58(3), pages 407-436.
    5. Rose, Andrew K., 1990. "Exchange rates and the trade balance : Some evidence from developing countries," Economics Letters, Elsevier, vol. 34(3), pages 271-275, November.
    6. Hansen, Bruce E., 1992. "Efficient estimation and testing of cointegrating vectors in the presence of deterministic trends," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 87-121.
    7. Riedel, James, 1984. "Trade as the Engine of Growth in Developing Countries, Revisited," Economic Journal, Royal Economic Society, vol. 94(373), pages 56-73, March.
    8. Marquez, Jaime & McNeilly, Caryl, 1988. "Income and Price Elasticities for Exports of Developing Countries," The Review of Economics and Statistics, MIT Press, vol. 70(2), pages 306-314, May.
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    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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