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The Threshold Effect of Exchange Rate Volatility on Trade Volume: Evidence from G-7 Countries

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  • Yanhong Zhang
  • Hui Chang
  • Jean Gauger

Abstract

This paper uses a threshold model to examine a possible threshold effect in the impact of exchange rate volatility on trade volume for the bilateral trade volumes between the US and other G-7 countries. A grid-searching method is used to obtain the threshold points, and time-series econometric techniques are applied to estimate the long run stable relationships as well as short-run dynamics. The results support the existence of nonlinearity in the effect of exchange rate volatility, and indicate that trade volume tends to increase when exchange rate volatility surpasses a certain threshold point.

Suggested Citation

  • Yanhong Zhang & Hui Chang & Jean Gauger, 2006. "The Threshold Effect of Exchange Rate Volatility on Trade Volume: Evidence from G-7 Countries," International Economic Journal, Taylor & Francis Journals, vol. 20(4), pages 461-476.
  • Handle: RePEc:taf:intecj:v:20:y:2006:i:4:p:461-476
    DOI: 10.1080/10168730601027039
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    References listed on IDEAS

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    Cited by:

    1. Komain Jiranyakul, 2013. "Exchange Rate Uncertainty and Import Demand of Thailand," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(10), pages 1269-1280, October.
    2. Bouoiyour, Jamal & Selmi, Refk, 2014. "How Robust is the Connection between Exchange Rate Uncertainty and Tunisia’s Exports?," MPRA Paper 57505, University Library of Munich, Germany.

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    Keywords

    Exchange rate volatility; trade; threshold;

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