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Does Exchange Rate Risk Affect Exports Asymmetrically? Asian Evidence

  • WenShwo Fang

    (Feng Chia University)

  • YiHao Lai

    (Feng Chia University)

  • Stephen M. Miller

    (University of Connecticut and University of Nevada Las Vegas)

The effects of exchange rate risk have interested researchers, since the collapse of fixed exchange rates. Little consensus exists, however, regarding its effect on exports. Previous studies implicitly assume symmetry. This paper tests the hypothesis of asymmetric effects of exchange rate risk with a dynamic conditional correlation bivariate GARCH(1,1)-M model. The asymmetry means that exchange rate risk (volatility) affects exports differently during appreciations and depreciations of the exchange rate. The data include bilateral exports from eight Asian countries to the US. The empirical results show that real exchange rate risk significantly affects exports for all countries, negative or positive, in periods of depreciation or appreciation. For five of the eight countries, the effects of exchange risk are asymmetric. Thus, policy makers can consider the stability of the exchange rate in addition to its depreciation as a method of stimulating export growth.

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Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2005-09.

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Length: 29 pages
Date of creation: Mar 2005
Date of revision:
Publication status: Forthcoming in Journal of International Money and Finance
Handle: RePEc:uct:uconnp:2005-09
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