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Does Real Exchange Rate Volatility Affect Sectoral Trade Flows?

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  • Mustafa Caglayan
  • Jing Di

Abstract

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.

Suggested Citation

  • Mustafa Caglayan & Jing Di, 2010. "Does Real Exchange Rate Volatility Affect Sectoral Trade Flows?," Southern Economic Journal, John Wiley & Sons, vol. 77(2), pages 313-335, October.
    • Handle: RePEc:wly:soecon:v:77:y:2010:i:2:p:313-335
    DOI: 10.4284/sej.2010.77.2.313
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    Cited by:

    1. Christopher F. Baum & Mustafa Caglayan, 2008. "The Volatility of International Trade Flows and Exchange Rate Uncertainty," Boston College Working Papers in Economics 695, Boston College Department of Economics.
    2. Marilyne Huchet-Bourdon & Jane Korinek, 2011. "To What Extent Do Exchange Rates and their Volatility Affect Trade?," OECD Trade Policy Papers 119, OECD Publishing.
    3. Verheyen, Florian, 2012. "Bilateral exports from euro zone countries to the US — Does exchange rate variability play a role?," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 97-108.
    4. Thomas Habanabakize & Zandri Dickason-Koekemoer, 2023. "Investment, Exchange Rate and Exports Nexus within the South African Automotive Industry," International Journal of Economics and Financial Issues, Econjournals, vol. 13(3), pages 178-184, May.
    5. repec:got:cegedp:121 is not listed on IDEAS

    More about this item

    JEL classification:

    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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