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Asymmetric effects of exchange rate volatility on trade flows: evidence from G7

Author

Listed:
  • Mohsen Bahmani-Oskooee

    (The University of Wisconsin-Milwaukee)

  • Huseyin Karamelikli

    (Karabuk University)

  • Farhang Niroomand

    (University of Huston-Victoria)

Abstract

Current trend in applied research points at application of Shin et al.’s (2014) nonlinear ARDL approach to asymmetric error-correction modeling and asymmetric cointegration. Two studies in the literature have applied these approaches to assess the short-run and long-run asymmetric effects of exchange rate volatility on aggregate exports and imports of Asian and African countries, respectively. We add to this new literature by considering the experiences of G7 countries. We find that trade flows of almost all countries are affected by volatility asymmetrically in the short run. In the long run, while French and Italian exports are boosted by increased volatility, German exports are hurt. On the other hand, decreased volatility reduces French and Italian exports. As for G7 imports, increased exchange rate volatility hurts imports of Canada, Germany, France, Italy, and the U.K. in the long run and decreased volatility boosts their imports.

Suggested Citation

  • Mohsen Bahmani-Oskooee & Huseyin Karamelikli & Farhang Niroomand, 2023. "Asymmetric effects of exchange rate volatility on trade flows: evidence from G7," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 47(1), pages 38-62, March.
    • Handle: RePEc:spr:jecfin:v:47:y:2023:i:1:d:10.1007_s12197-022-09597-5
    DOI: 10.1007/s12197-022-09597-5
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    References listed on IDEAS

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    More about this item

    Keywords

    G7 countries; Exchange rate volatility; Trade Flows; Asymmetry effects;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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