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On the Sensitivity of the Volume and Volatility of Bilateral Trade Flows to Exchange Rate Uncertainty

  • Christopher F. Baum

    ()

    (Boston College
    DIW Berlin)

  • Mustafa Caglayan

    (University of Sheffield)

We present an empirical investigation of the hypotheses that exchange rate volatility may have an impact on both the volume and variability of trade flows by considering a broad set of industrial countries' bilateral real trade flows over the period 1980-1998. Similar to the findings of earlier theoretical and empirical research, our first set of results shows that the impact of exchange rate uncertainty on trade flows is indeterminate. Our second set of results provides new and novel findings that exchange rate volatility has a consistent positive and significant effect on the volatility of bilateral trade flows, helping us better understand macroeconomic volatility.

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Paper provided by Boston College Department of Economics in its series Boston College Working Papers in Economics with number 641.

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Length: 28 pages
Date of creation: 16 Apr 2006
Date of revision: 06 Feb 2008
Publication status: published, Journal of International Money and Finance, 29:79-93, 2010.
Handle: RePEc:boc:bocoec:641
Note: previously circulated as "Effects of Exchange Rate Volatility on the Volume and Volatility of Bilateral Exports"
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