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Does Real Exchange Rate Volatility Affect Sectoral Trade Flows?

Author

Listed:
  • Mustafa Caglayan
  • Jing Di

    (Department of Economics, The University of Sheffield)

Abstract

This paper investigates empirically the effect of real exchange rate volatility on sectoral bilateral trade flows between the US and her top thirteen trading countries. Our investigation also considers those effects on trade flows which may arise through changes in income volatility and the interaction between income and exchange rate volatilities. We provide evidence that exchange rate volatility mainly affects sectoral trade flows of developing but not that of developed countries. We also find that the effect of the interaction term on trade flows is opposite that of exchange rate volatility yet there is little impact arising from income volatility.

Suggested Citation

  • Mustafa Caglayan & Jing Di, 2008. "Does Real Exchange Rate Volatility Affect Sectoral Trade Flows?," Working Papers 2008011, The University of Sheffield, Department of Economics, revised Sep 2008.
    • Handle: RePEc:shf:wpaper:2008011
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    File URL: http://www.shef.ac.uk/content/1/c6/08/83/15/Shef_WP_2008011.pdf
    File Function: First version, 2008
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    Cited by:

    1. 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.
    2. Marilyne Huchet-Bourdon & Jane Korinek, 2011. "To What Extent Do Exchange Rates and their Volatility Affect Trade?," OECD Trade Policy Papers 119, OECD Publishing.
    3. Verheyen, Florian, 2012. "Bilateral exports from euro zone countries to the US — Does exchange rate variability play a role?," International Review of Economics & Finance, Elsevier, vol. 24(C), pages 97-108.
    4. Thomas Habanabakize & Zandri Dickason-Koekemoer, 2023. "Investment, Exchange Rate and Exports Nexus within the South African Automotive Industry," International Journal of Economics and Financial Issues, Econjournals, vol. 13(3), pages 178-184, May.
    5. repec:got:cegedp:121 is not listed on IDEAS

    More about this item

    Keywords

    exchange rates; volatility; trade flows.;
    All these keywords.

    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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