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Export Promotion through Exchange Rate Policy: Exchange Rate Depreciation or Stabilization?

Author

Listed:
  • WenShwo Fang

    (Feng Chia University)

  • YiHao Lai

    (Deng Chia University)

  • Stephen M. Miller

    (University of Connecticut and University of Nevada, Las Vegas)

Abstract

Exchange rate movements affect exports in two ways -- its depreciation and its variability (risk). A depreciation raises exports, but the associated exchange rate risk could offset that positive effect. The present paper investigates the net effect for eight Asian countries using a dynamic conditional correlation bivariate GARCH-M model that simultaneously estimates time varying correlation and exchange rate risk. Depreciation encourages exports, as expected, for most countries, but its contribution to export growth is weak. Exchange rate risk contributes to export growth in Malaysia and the Philippines, leading to positive net effects. Exchange rate risk generates a negative effect for six of the countries, resulting in a negative net effect in Indonesia, Japan, Singapore, Taiwan and a zero net effect in Korea and Thailand. Since the negative effect of exchange rate risk may offset, or even dominate, positive contributions from depreciation, policy makers need to reduce exchange rate fluctuation along with and possibly before efforts to depreciate the currency.

Suggested Citation

  • WenShwo Fang & YiHao Lai & Stephen M. Miller, 2005. "Export Promotion through Exchange Rate Policy: Exchange Rate Depreciation or Stabilization?," Working papers 2005-07, University of Connecticut, Department of Economics.
    • Handle: RePEc:uct:uconnp:2005-07
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    References listed on IDEAS

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    2. Fakhri, Hasanov, 2010. "The Impact of Real Effective Exchange Rate on the Non-oil Export: The Case of Azerbaijan," MPRA Paper 29556, University Library of Munich, Germany.
    3. Khee Giap Tan & Luu Nguyen Trieu Duong & Hui Yin Chuah, 2019. "Impact of exchange rates on ASEAN's trade in the era of global value chains: An empirical assessment," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 28(7), pages 873-901, October.
    4. Ammani, Aliyu Aishat, 2013. "Impact Of Market-Determined Exchange Rates On Rice Production And Import In Nigeria," International Journal of Food and Agricultural Economics (IJFAEC), Alanya Alaaddin Keykubat University, Department of Economics and Finance, vol. 1(2), pages 1-14, October.
    5. Ekundayo P. Mesagan & Olorunfemi Y. Alimi & Ismaila A. Yusuf, 2018. "Macroeconomic Implications of Exchange Rate Depreciation: The Nigerian Experience," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 16(3 (Fall)), pages 235-258.
    6. Noor Aini Zakaria Author_Email: norainiz@frim.gov.my / ainizack82@yahoo.com & Hafizah Abdul Rahim, 2011. "The Link Between Exchange Rate And Timber Export Earnings: Evidence From Malaysia," 2nd International Conference on Business and Economic Research (2nd ICBER 2011) Proceeding 2011-486, Conference Master Resources.

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    More about this item

    Keywords

    exports; exchange rate policy; net effect; DCC bivariate GARCH-M model;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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