On the asymmetric effects of exchange rate volatility on trade flows: New evidence from US-Malaysia trade at the industry level

All previous studies that assessed the impact of exchange rate volatility on trade flows assumed that the effects are symmetric. In this paper, we open a new path in the literature by arguing that indeed the effects of exchange rate volatility on trade flows could be asymmetric. The asymmetric effects are mostly due to the change in expectations of traders when a currency depreciates as compared to a case when that currency appreciates. We demonstrate the asymmetric effects by using monthly data from 54 Malaysian industries that export to the U.S. and from 63 Malaysian industries that import from the U.S. The application of the nonlinear Autoregressive Distributed Lag (ARDL) approach of Shin et al. (2014) supports short-run as well as long-run asymmetric effects in almost 1/3rd of the industries. The approach identifies industries that are affected when volatility increases versus those that are affected when volatility declines.     

Exchange rate effects on Korea–U.S. bilateral trade: A new look

This study examines the effect of exchange rate fluctuations on Korea׳s trade with the U.S. by taking the roles of exchange rate volatility and third country effects into account. An autoregressive distributed lag (ARDL) approach to cointegration is applied to estimate bilateral exports and imports of disaggregating 10 industries between Korea and the U.S. We find that Korea׳s major export industries are highly responsive to the bilateral exchange rate, volatility and third country effects in both the long- and short-run, whereas Korea׳s imports are mostly insensitive to changes in those three factors. It is also found that income in both countries plays an important role in influencing the bilateral trade flows in both the long- and short-run.     

Impact of exchange rate uncertainty on commodity trade between US and Sweden

Previous studies that investigated the effects of exchange rate uncertainty on the trade flows of Sweden employed aggregate trade data either between Sweden and the rest of the world or at bilateral level between Sweden and her major trading partners. In this article, we disaggregate the trade data and employ the import and export data from 87 industries that trade between Sweden and the US. We find that exchange rate volatility has significant short-run effects on the trade flows between the two countries in almost two-third of the industries. However, the short-run effects are translated into the long-run effects in one-third of the cases. Furthermore, the real depreciation of krona against the dollar was found to have favourable effects on the overall trade balance between the two countries.     

Exchange rate volatility and US commodity trade with the rest of the world

Exchange rate volatility is argued to affect the trade flows negatively and positively. Indeed, empirical studies that have addressed the issue have supported both effects. These studies have used aggregate trade flows data either between one country and the rest of the world or between two countries at the bilateral level. Studies that have disaggregated trade data by industry are rare. Thus, we extend the literature by looking at the experiences of 66 American industries that trade with the rest of the world using monthly data. In most cases, trade flows are not affected by GARCH‐based volatility of the real effective exchange rate of the dollar.     

Asymmetric J-curve: evidence from industry trade between U.S. and U.K.

ABSTRACT

Previous research that assessed the impact of exchange rate changes on the trade balance between the U.S. and U.K. assumed the effects are symmetric. In this paper, we add to the literature on the asymmetric J-curve phenomenon by considering the trade balance of 68 two-digit industries that trade between the two countries. We find short-run asymmetric effects of the real dollar-pound rate in almost all industries. However, short-run asymmetric effects were translated into significant long-run asymmetric effects in 25 industries. Indeed, the asymmetric J-curve hypothesis was supported in 18 industries.     

Does exchange-rate uncertainty matter in the Malaysia–E.U. bilateral trade? An industry level investigation

Due to ambiguity in the past literature, researchers have examined exchange rate volatility effect on trade using disaggregated data in recent years. Previous research has focused more on aggregated data having aggregation bias which has led to unnecessarily over-generalized findings. This study investigates the impact of exchange rate volatility on the Malaysian bilateral trade flows with European Union using industry level data. Our empirical findings, based on auto-regressive distributed lag framework, suggest that many import and export industries experience exchange rate volatility influence in the short run, while a very small number of industries show this effect in the long run. Moreover, the adverse impact of financial crisis (2007–2008) is more prevalent on import industries compared to export industries.     

Exchange-rate variability and U.S.-French trade flows: evidence from industry data

Recent studies have greatly expanded the literature on the effects of exchange-rate volatility on industry-level bilateral trade flows. In this study, we examine the case of the United States and France, applying cointegration analysis to a set of 146 U.S. export and 115 U.S. import industries. We find that the majority of industries show little or no relationship between risk and trade volumes, but that small industries—particularly for exports—show more sensitivity than do large ones. A disproportionate share of industries respond positively to increased volatility, particularly among U.S. importers, suggesting the presence of “risk loving” behavior.     

IMPACT OF EXCHANGE RATE UNCERTAINTY ON COMMODITY TRADE BETWEEN THE US AND AUSTRALIA*

Exchange rate volatility is said to have negative or positive effect on trade flows. Previous studies that considered the impact of exchange rate uncertainty on the trade flows of Australia employed trade data either between Australia and rest of the world or between Australia and her few major trading partners. They were unable to discover any significant impact. In this paper when we disaggregate trade data by commodity between Australia and one of her major trading partners, the US, we find exchange rate volatility to have short‐run effects on trade flows of most industries. However, the short‐run effects last into long run, only in limited cases, though more in export commodities than import ones.     

US–Indonesia trade at commodity level and the role of the exchange rate

Previous studies that assessed the impact of currency depreciation on inpayments and outpayments of Indonesia with her major trading partners did not find much significant results, especially in the trade with the United States. We wonder whether insignificant link between the real rupiah-dollar rate and Indonesia’s inpayments and outpayments with the United States is due to aggregation bias. To answer this question, we disaggregate the trade flows between the two countries by commodity and consider the sensitivity of inpayments of 108 US exporting industries and outpayments of 32 US importing industries from Indonesia. We find that most industries respond to exchange rate changes in the short run. In the long run, however, 32 inpayments schedule and 17 outpayments schedule are significantly affected. A 1% real depreciation of the dollar was found to improve US trade balance by 1.8%.     

A nonlinear approach to the U.S.–Australia commodity trade and the J‐curve: Evidence from 123 industries

The application of nonlinear models and asymmetric analysis have recently proven to yield results that are superior to those of the linear and symmetric analysis. However, the new approaches in testing the J‐curve between Australia and the rest of the world or between Australia and her trading partners such as the United States did not yield any significant outcomes. Suspecting that those results suffer from aggregation bias, we apply new methods to the trade flows of 123 industries that trade between the United States and Australia and give evidence of an asymmetric J‐curve in 28 industries. Furthermore, we find short‐run asymmetric effects of exchange rate changes on the trade balance of almost all studies, short‐run impact asymmetric effects in 27 industries and significant long‐run asymmetric effects in 56 industries. Our findings are industry‐specific.     

美中贸易收支与人民币汇率关系:实证分析

针对美中贸易收支与人民币汇率问题,经研究发现,汇率变动对贸易收支的影响是值得怀疑的,仅仅依靠人民币汇率变动是无法解决美中贸易逆差问题的。1994—2002年年度数据实证显示,美中贸易收支与人民币汇率(名义或实际汇率)之间没有稳定的关系;1998—2003年月度数据计量表明,美中贸易收支与人民币汇率之间没有长期稳定的协整关系。并且,依据美中两国月度统计数据计量的结论是相一致的。因此,“人民币升值论”或许更多的是基于政治而非经济因素,人民币汇率浮动并不能解决美中贸易逆差问题。     

The real peso–dollar rate and US–Mexico industry trade: an asymmetric analysis

In an attempt to improve upon previous analyses and find further evidence for exchange rate theories such as the ‘J‐curve', numerous studies have introduced novel econometric approaches that might help uncover significant results through disaggregation and nonlinearity. This study applies the nonlinear cointegration method of Shin et al . ( 2014 ) to US–Mexican trade balances in 91 individual industries. While the linear model yields support for the ‘J‐curve' effect in 16 industries, the nonlinear model raises this number to 29 which includes the two largest industries that engage in 35% of the trade between two countries. Furthermore, while the short‐run asymmetric effects of exchange rate changes were discovered in almost all industries, short‐run effects translated to significant long‐run asymmetric effects in 52 industries.     

Asymmetric effect of exchange rate volatility on India's cross‐border trade: Evidence from global financial crisis and multiple threshold nonlinear autoregressive distributed lag model

This paper examines the asymmetric effect of exchange rate volatility on India's cross‐border trade with its major trading partners: Japan, Germany, the United States, and China. We extend previous studies in two ways. First, we examine whether global financial crisis changes the asymmetric effect of exchange rate volatility on India's cross‐border trade. Next, we divide exchange rate volatility into quintiles and examine the effect of each quintile on cross‐border trade by using the multiple threshold nonlinear autoregressive distributed lag (MTNARDL) model. Our findings from standard nonlinear ARDL (NARDL) indicate that the asymmetric relationship between exchange rate volatility and cross‐border trade changes as a result of global financial crisis. In addition, findings from MTNARDL indicate that in short‐run, exchange rate volatility symmetrically affects India's cross‐border trade with all sample countries whereas in long‐run it asymmetrically affects cross‐border trade. Overall, these findings are very important for policy implications and open a new dimension to exchange rate volatility and trade flows.     

The impact of exchange rate volatility on commodity trade between the US and Thailand

The impact of exchange rate volatility on trade flows continues to occupy the international finance literature. More recent studies have deviated from the traditional approach of using aggregate trade flows and have employed trade data at commodity level. This study investigates the impact of exchange rate uncertainty on the trade flows of 118 US exporting industries to Thailand and 41 US importing industries from Thailand. We find that exchange rate uncertainty has short-run effects on the trade flows of most industries. In the long-run, the main determinants of the trade flows are the level of economic activity in both countries.     

Whose policy uncertainty affects commodity trade between Australia and the United States?

Recent studies are assessing the impact of news-based policy uncertainty measure on trade flows between countries. In this paper we add to this new literature by investigating the symmetric and asymmetric effects of Australian policy uncertainty index and the U.S. index on trade flows of 63 two-digit industries that trade between the two countries. When we estimated a symmetric and linear model for each industry, we found short-run effects of both uncertainty measures on 30% of the industries' trade flows. However, this number increased to 70% when an asymmetric and nonlinear model was estimated. The long-run effects of both policy uncertainty followed similar pattern. Less than 10% of trade was affected by the estimates of the linear models. However, estimates of the nonlinear models predicted that 41.20% (26.53%) of the U.S. exports to Australia was affected by the U.S. uncertainty (Australian uncertainty). As for the Australian exports to the United States, 6.72% (5.5%) of its exports were affected by the changes in the U.S. policy uncertainty (Australian uncertainty). In almost all industries, increased uncertainty was found to hurt the trade and decreased uncertainty was found to boost it at different rate or asymmetrically. In sum, the U.S. and Australian policy uncertainty measure affects U.S. exports to Australia much more than they affect Australian exports to the United States.     

Commodity trade between Pakistan and the US: is there evidence of the J-curve?

A few studies that have attempted to estimate the short-run (J-curve) and long-run impact of exchange rate depreciation on Pakistan’s trade balance are either based on aggregate trade data between Pakistan and the rest of the world or between Pakistan and her bilateral trading partners. The findings are mixed at best. Considering the trade balance between Pakistan and the US, as one of its major partners, no significant effects have been discovered. Suspecting that the trade flows between the two countries could suffer from another aggregation bias, we disaggregate their trade flows by commodity and consider the trade balance of 45 industries that trade between the two countries. We find significant short-run effects of currency depreciation on the trade balance of 17 industries. The short-run effects last into the long run in 15 cases. The largest industry that account for more than 10% of the trade seems to benefit from real depreciation in the long run.     

Exchange‐Rate Risk and Japanese–Thai Industry Trade

Over the past decade, many papers have studied the effects of exchange‐rate volatility on international trade, particularly at the bilateral level for large numbers of individual industries. This is necessary because the underlying theory is ambiguous and because earlier papers failed to uncover significant results at a higher degree of aggregation. This paper examines the case of Japan and Thailand over the period from 1970 to 2010. We find that slightly more than half of 117 export industries and 54 import industries are affected by volatility in the short run. In the long run, 6 export and 2 import industries are affected positively, and 22 export and 9 import industries are affected negatively. Small Japanese export industries are more likely to be negatively affected, while imports show no differences regarding industry size. In a sectoral analysis, we find some evidence that Japanese exports of manufactures and certain machinery and transport equipment might be relatively more affected by the exchange‐rate risk. Raw material imports are least affected. These findings therefore suggest which industries might benefit most by a policy promoting a stable yen.     

An investigation of the effects of exchange rate volatility on exports in East Asia

This study investigates the effects of the exchange rate volatility on the export flows of Indonesia, Malaysia, Republic of Korea, Singapore, Thailand, and the Philippines during 1974–2011. Towards this goal a trade weighted real effective (rather than the bilateral) exchange rate and three different measures of volatility, i.e. obtained from an ARCH model, a GARCH model and a moving-average standard deviation measure are used in this study. Specifically, the export flows between six Asian countries and the rest of the world are investigated rather than focusing on trade with only one country. Our findings reveal that the exchange rate volatility has a significant impact on export flows in the short run as well as in the long run for all the countries in the sample. The impact in the long run is predominantly negative with the exception of Singapore, but in the short run the impact varies across countries. Moreover, our results are robust to the alternative measures of volatility used and most of the findings in the long run and short run are also robust to the crisis period.     

Whose policy uncertainty affects trade flows between Japan and the U.S.?

Previous studies mostly assumed that the effects of policy uncertainty on trade flows are symmetric. In this article, we add to this literature by arguing and demonstrating that the effects could be asymmetric. Since asymmetry analysis requires using non-linear models, such models yield a more significant outcome than linear models. We show this by considering the trade flows of 66 two-digit U.S. exporting industries to Japan and 59 two-digit Japanese exporting industries to the United States. While both the linear and non-linear models predicted short-run effects of the U.S. and Japanese policy uncertainty on exports of most industries, the long-run effects were significantly different. In the long run, while the linear model predicted no significant effects of either uncertainty measure, the non-linear model 12 (14) U.S. exporting industries that were affected by changes in the Japanese (the U.S.) policy uncertainty measure and six (10) Japanese exporting industries that were affected by changes in the Japanese (the U.S.) policy uncertainty measure. Several large industries were among the affected industries.     

The Threshold Effect of Exchange Rate Volatility on Trade Volume: Evidence from G-7 Countries

Abstract

This paper uses a threshold model to examine a possible threshold effect in the impact of exchange rate volatility on trade volume for the bilateral trade volumes between the US and other G-7 countries. A grid-searching method is used to obtain the threshold points, and time-series econometric techniques are applied to estimate the long run stable relationships as well as short-run dynamics. The results support the existence of nonlinearity in the effect of exchange rate volatility, and indicate that trade volume tends to increase when exchange rate volatility surpasses a certain threshold point.