Exchange Rate Volatility and Export Margins
This paper examines the effect of real exchange rate volatility on the intensive margin and the extensive margin of exports. Using highly disaggregated U.S. import data by product and country of origin, and a methodology that takes into account the possible endogeneity of volatility to trade, this paper finds that exchange rate volatility hinders trade by reducing the number of goods exported by countries. This result suggests that exchange rate volatility can make countries more dependent on a narrower set of export goods, particularly in developing economies with export concentration. Policy makers should take this effect into account when deciding their exchange rate regimes.
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