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The Volatility of International Trade Flows and Exchange Rate Uncertainty

Author

Listed:
  • Christopher F. Baum

    () (Boston College
    DIW Berlin)

  • Mustafa Caglayan

    (University of Sheffield)

Abstract

Empirical evidence obtained from data covering Eurozone countries, other industrialized countries, and newly industrialized countries (NICs) over 1980–2006 shows that exchange rate uncertainty has a consistent positive and significant effect on the volatility of bilateral trade flows. A one standard deviation increase in exchange rate uncertainty leads to an eight per cent increase in trade volatility. These effects differ markedly for trade flows between industrialized countries and NICs, and are not mitigated by the presence of the Eurozone. Contrary to earlier findings, our results also suggest that exchange rate uncertainty does not affect the volume of trade flows of either industrialized countries or NICs.

Suggested Citation

  • 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.
  • Handle: RePEc:boc:bocoec:695
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    File URL: http://fmwww.bc.edu/EC-P/wp695.pdf
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    References listed on IDEAS

    as
    1. Baum, Christopher F. & Caglayan, Mustafa, 2010. "On the sensitivity of the volume and volatility of bilateral trade flows to exchange rate uncertainty," Journal of International Money and Finance, Elsevier, vol. 29(1), pages 79-93, February.
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    Cited by:

    1. Mustafa Caglayan & Omar S. Dahi & Firat Demir, 2013. "EsTrade Flows, Exchange Rate Uncertainty, and Financial Depth: Evidence from 28 Emerging Countries," Southern Economic Journal, Southern Economic Association, vol. 79(4), pages 905-927, April.

    More about this item

    Keywords

    exchange rates; uncertainty; volatility; trade flows; industrialized countries; Eurozone; newly industrialized countries;

    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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