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Exchange Rate Volatility and International Trade

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Listed:
  • Udo Broll
  • Bernhard Eckwert

Abstract

The purpose of this note is to show that a positive effect of exchange rate volatility on export production has a theoretical basis. The key to this claim is that, as the exchange rate volatility increases, so does the value of the real option to export to the world market. Higher volatility increases the potential gains from trade. This may explain part of the mixed empirical findings regarding the effects of exchange rate risk on international trade.

Suggested Citation

  • Udo Broll & Bernhard Eckwert, 1999. "Exchange Rate Volatility and International Trade," Southern Economic Journal, Southern Economic Association, vol. 66(1), pages 178-185, July.
  • Handle: RePEc:sej:ancoec:v:66:1:y:1999:p:178-185
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