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To What Extent Do Exchange Rates and their Volatility Affect Trade?

Author

Listed:
  • Marilyne Huchet-Bourdon

    (AgroCampus Ouest, Rennes)

  • Jane Korinek

    (OECD)

Abstract

Trade deficits and surpluses are sometimes attributed to intentionally low or high exchange rate levels. The impact of exchange rate levels on trade has been much debated but the large body of existing empirical literature does not suggest an unequivocally clear picture of the trade impacts of changes in exchange rates. The impact of exchange rate volatility on trade also does not benefit from a clear theoretical cause-effect relationship. This study examines the impact of exchange rates and their volatility on trade flows in China, the Euro area and the United States in two broadly defined sectors, agriculture on the one hand and manufacturing and mining on the other. It finds that exchange volatility impacts trade flows only slightly. Exchange rate levels, on the other hand, affect trade in both agriculture and manufacturing and mining sectors but do not explain in their entirety the trade imbalances in the three countries examined.

Suggested Citation

  • Marilyne Huchet-Bourdon & Jane Korinek, 2011. "To What Extent Do Exchange Rates and their Volatility Affect Trade?," OECD Trade Policy Papers 119, OECD Publishing.
  • Handle: RePEc:oec:traaab:119-en
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    File URL: http://dx.doi.org/10.1787/5kg3slm7b8hg-en
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    References listed on IDEAS

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    Cited by:

    1. Ricardo A. López & Huong D. Nguyen, 2015. "Real Exchange Rate Volatility and Imports of Intermediate Inputs: A Microeconometric Analysis of Manufacturing Plants," Review of International Economics, Wiley Blackwell, vol. 23(5), pages 972-995, November.
    2. Amelia Nurunnisa & Fithra Faisal Hastiadi, 2016. "Real Exchange Rate, Trade Balance and Deindustrialization in Indonesia," Working Papers in Economics and Business 201604, Faculty of Economics and Business, University of Indonesia, revised Jun 2016.
    3. Chi, Junwook & Cheng, Seu Keow, 2016. "Do exchange rate volatility and income affect Australia’s maritime export flows to Asia?," Transport Policy, Elsevier, vol. 47(C), pages 13-21.
    4. repec:sgh:gosnar:y:2017:i:3:p:115-141 is not listed on IDEAS
    5. Katarzyna Twarowska, 2015. "The Impact of Exchange Rate on Poland’s Trade Flows," International Journal of Management, Knowledge and Learning, International School for Social and Business Studies, Celje, Slovenia, vol. 4(1), pages 41-57.
    6. Tunç, Cengiz & Solakoglu, M. Nihat, 2016. "Does exchange rate volatility matter for international sales? Evidence from US firm level data," Economics Letters, Elsevier, vol. 149(C), pages 152-156.
    7. Liu, Xing & Lehtonen, Heikki & Purola, Tuomo & Pavlova, Yulia & Rötter, Reimund & Palosuo, Taru, 2016. "Dynamic economic modelling of crop rotations with farm management practices under future pest pressure," Agricultural Systems, Elsevier, vol. 144(C), pages 65-76.
    8. Victor Pontines & Richard Pomfret, 2014. "Exchange rate policy and regional trade agreements: a case of conflicted interests?," Chapters,in: A World Trade Organization for the 21st Century, chapter 7, pages 157-181 Edward Elgar Publishing.
    9. Cueyt SEVIM & Taylan Taner DOGAN, 2016. "Turkiye Ekonomisinde Ihracat ve Doviz Kuru Oynakligi Iliskisi," Ege Academic Review, Ege University Faculty of Economics and Administrative Sciences, vol. 16(2), pages 303-318.
    10. Christian Aubin & Camélia Turcu, 2013. "The Impact of Exchange Rate Regimes on Production Structures Across Countries: the European Case," Working Papers hal-00961835, HAL.
    11. Maria V. Sokolova, 2016. "Exchange Rates, International Trade and Growth: Re-Evaluation of Undervaluation," IHEID Working Papers 05-2016, Economics Section, The Graduate Institute of International Studies.
    12. Sahabettin Gunes, 2013. "The Effect of Exchange Rates on the International Trade in Turkey," European Journal of Economic and Political Studies, Fatih University, vol. 6(1), pages 85-95.
    13. Catherine Laroche-Dupraz & Marilyne Huchet-Bourdon & Anned-Linz Senadin, 2012. "Impact du taux de change sur la sécurité alimentaire des pays en développement," Post-Print hal-01208814, HAL.
    14. Figiel, Szczepan & Hamulczuk, Mariusz & Klimkowski, Cezary & Kufel, Justyna, 2014. "Potential Trade Implications Of Joining The Euro Zone For The Polish Agro-Food Sector," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 182836, European Association of Agricultural Economists.
    15. V Polodoo & B Seetanah & Sannassee R. V, 2016. "Exchange rate volatility and manufacturing trade: Evidence from Africa," Journal of Developing Areas, Tennessee State University, College of Business, vol. 50(5), pages 241-256.
    16. Ricardo Lopez, 2015. "Long Real Exchange Rate Volatility and Imports of Intermediate Inputs: A Microeconometric Analysis of Manufacturing Plants," Working Papers 86, Brandeis University, Department of Economics and International Businesss School.
    17. repec:ris:ecoint:0803 is not listed on IDEAS
    18. Páll, Zsombor, 2015. "Three essays on the Russian wheat export," Studies on the Agricultural and Food Sector in Transition Economies, Leibniz Institute of Agricultural Development in Transition Economies (IAMO), volume 80, number 80.
    19. Enzo Cassino & David Oxley, 2013. "How Does the Exchange Rate Affect the Real Economy? A Literature Survey," Treasury Working Paper Series 13/26, New Zealand Treasury.

    More about this item

    Keywords

    currency movements; depreciation; euro; exchange hedging; exchange rate appreciation; exchange rates; GARCH volatility; long-run effects; real exchange rates; short-run effects; trade; trade deficit; trade in agriculture; US dollar; volatility; yuan;

    JEL classification:

    • F01 - International Economics - - General - - - Global Outlook
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade

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