Does Exchange Rate Volatility Depress Trade Flows? Evidence from Error-Correction Models
This paper examines the impact of exchange rate volatility on the trade flows of the G-7 countries in the context of a multivariate error-correction model. The error-correction models do not show any sign of parameter instability. The results indicate that the exchange rate volatility has a significant negative impact on the volume of exports in each of the G-7 countries. Assuming market participants are risk averse, these results imply that exchange rate uncertainty causes them to reduce their activities, change prices, or shift sources of demand and supply in order to minimize their exposure to the effects of exchange rate volatility. This, in turn, can change the distribution of output across many sectors in these countries. It is quite possible that the surprisingly weak relationship between trade flows and exchange rate volatility reported in several previous studies are due to insufficient attention to the stochastic properties of the relevant time series. Copyright 1993 by MIT Press.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 75 (1993)
Issue (Month): 4 (November)
|Contact details of provider:|| Web page: http://mitpress.mit.edu/journals/|
|Order Information:||Web: http://mitpress.mit.edu/journal-home.tcl?issn=00346535|
When requesting a correction, please mention this item's handle: RePEc:tpr:restat:v:75:y:1993:i:4:p:700-706. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kristin Waites)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.