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Exchange-rate volatility and trade: a semiparametric approach

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  • Debasri Mukherjee
  • Susan Pozo

Abstract

We use a gravity model to analyse the impact of exchange-rate volatility on the volume of bilateral international trade. Semiparametric regression methods are applied to the pooled data for over 200 countries. Our results indicate that volatility affects trade negatively although at very high level of volatility the effect diminishes and eventually becomes statistically indistinguishable from zero. Countries apparently find avenues to mitigate the detrimental impact of exchange rate uncertainty when volatility attains very high levels. These results help reconcile the contradictory findings often found in the literature on the impact of exchange-rate uncertainty on trade volume.

Suggested Citation

  • Debasri Mukherjee & Susan Pozo, 2011. "Exchange-rate volatility and trade: a semiparametric approach," Applied Economics, Taylor & Francis Journals, vol. 43(13), pages 1617-1627.
    • Handle: RePEc:taf:applec:v:43:y:2011:i:13:p:1617-1627
    DOI: 10.1080/00036840802600327
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    References listed on IDEAS

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    1. Andrew Rose, 2005. "Does the WTO Make Trade More Stable?," Open Economies Review, Springer, vol. 16(1), pages 7-22, January.
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    Cited by:

    1. Jean-Marc Siroën, 2016. "L'OMC face à la crise des négociations multilatérales," Working Papers hal-01399859, HAL.
    2. Wu, Po-Chin & Liu, Shiao-Yen & Pan, Sheng-Chieh, 2013. "Nonlinear bilateral trade balance-fundamentals nexus: A panel smooth transition regression approach," International Review of Economics & Finance, Elsevier, vol. 27(C), pages 318-329.
    3. Estrella Gómez & Juliette Milgram Baleix, 2012. "EMU impact of on third countries’ exports. A gravity approach," ThE Papers 10/26, Department of Economic Theory and Economic History of the University of Granada..
    4. Nuria Gallego & Carlos Llano, 2014. "The Border Effect and the Nonlinear Relationship between Trade and Distance," Review of International Economics, Wiley Blackwell, vol. 22(5), pages 1016-1048, November.
    5. Lee, Jaeseok & Yue, Chengyan, 2017. "Impacts of the US dollar (USD) exchange rate on economic growth and the environment in the United States," Energy Economics, Elsevier, vol. 64(C), pages 170-176.
    6. Abdorreza Soleymani & Soo Y. Chua, 2014. "Effect of exchange rate volatility on industry trade flows between Malaysia and China," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 23(5), pages 626-655, August.
    7. Rashid Latief & Lin Lefen, 2018. "The Effect of Exchange Rate Volatility on International Trade and Foreign Direct Investment (FDI) in Developing Countries along “One Belt and One Road”," IJFS, MDPI, vol. 6(4), pages 1-22, October.
    8. Luo, June & Gerard, Patrick, 2013. "Using thresholding difference-based estimators for variable selection in partial linear models," Statistics & Probability Letters, Elsevier, vol. 83(12), pages 2601-2606.
    9. Matthieu Bussière & Jarko Fidrmuc & Bernd Schnatz, 2008. "EU Enlargement and Trade Integration: Lessons from a Gravity Model," Review of Development Economics, Wiley Blackwell, vol. 12(3), pages 562-576, August.
    10. Michał Brzozowski & Grzegorz Tchorek, 2017. "Exchange Rate Risk as an Obstacle to Export Activity," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 3, pages 115-141.
    11. ABBAS, Shah & Nguyen, V.C. & YANFU, Zhu & Nguyen, Huu Tinh, 2020. "The Impact of China Exchange Rate Policy on its Trading Partners Evidence Based on the GVAR Model," OSF Preprints cwvqb, Center for Open Science.
    12. Muhammad Aftab & Karim Bux Shah Syed & Rubi Ahmad & Izlin Ismail, 2016. "Exchange-rate variability and industry trade flows between Malaysia and Japan," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 25(4), pages 453-478, June.

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