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Does Real Exchange Rate Volatility Affect Sectoral Trade Flows?

  • Mustafa Caglayan


    (Department of Economics, University of Sheffield, 9 Mappin Street, Sheffield S1 4DT, United Kingdom;)

  • Jing Di


    (Department of Economics, University of Sheffield, 9 Mappin Street, Sheffield S1 4DT, United Kingdom)

This article investigates empirically the effect of real exchange rate volatility on sectoral bilateral trade flows between the United States and its top 13 trading partners. Our investigation also considers those effects on trade flows that may arise through changes in income volatility and the interaction between income and exchange rate volatilities. We provide evidence that (i) exchange rate volatility does not systematically affect sectoral trade flows, (ii) income volatility has little impact on trade flows, and (iii) the effect of the interaction term on trade flows is opposite that of exchange rate volatility, dampening its impact on trade flows.

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Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 77 (2010)
Issue (Month): 2 (October)
Pages: 313-335

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Handle: RePEc:sej:ancoec:v:77:2:y:2010:p:313-335
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