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Exchange Rate Volatility and Trade: External Exchange Rate Volatility Matters

Author

Listed:
  • Cengiz Tunc

    (Central Bank of the Republic of Turkey, Hacı Bayram Mah. İstiklal Cad. No)

  • Senol Babuşçu

    (#x2020;Department of Banking and Finance, Faculty of Commercial Sciences, Baskent University, Bağlıca Kampüsü Fatih Sultan Mahallesi Eskişehir Yolu 18.km, 06790 Etimesgut, Ankara, Turkey)

  • Adalet Hazar

    (#x2020;Department of Banking and Finance, Faculty of Commercial Sciences, Baskent University, Bağlıca Kampüsü Fatih Sultan Mahallesi Eskişehir Yolu 18.km, 06790 Etimesgut, Ankara, Turkey)

  • M. Nihat Solakoglu

    (#x2021;Department of Banking and Finance, Çankaya University, Yukariyurtcu Mahallesi Mimar Sinan Caddesi No)

Abstract

We investigate the role of external exchange rate volatility in export in addition to the effect of bilateral exchange rate volatility using country-, sector-, and destination-specific detailed export data of the World Bank Exporter Dynamics Database. The results show that while the bilateral exchange rate volatility has a depressing effect on export, the external exchange rate volatility generates trade-promoting effect on export. However, the magnitude of the effect depends on trade intensity between countries. Furthermore, while the role of external exchange rate volatility diminished after the Global Financial Crisis, the effect of its volatility has become larger. Finally, external exchange rate volatility has a larger trade-promoting effect on export in the presence of high volatilities than the effect in the presence of low volatilities.

Suggested Citation

  • Cengiz Tunc & Senol Babuşçu & Adalet Hazar & M. Nihat Solakoglu, 2020. "Exchange Rate Volatility and Trade: External Exchange Rate Volatility Matters," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 11(02), pages 1-19, June.
    • Handle: RePEc:wsi:jicepx:v:11:y:2020:i:02:n:s1793993320500064
    DOI: 10.1142/S1793993320500064
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    More about this item

    Keywords

    Exchange rate volatility; international trade; third-country effect; asymmetry;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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