On the sensitivity of the volume and volatility of bilateral trade flows to exchange rate uncertainty |
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Authors: | Christopher F. Baum Mustafa Caglayan |
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Affiliation: | 1. Boston College, 140 Commonwealth Ave., Chestnut Hill, MA 02467, USA;2. DIW Berlin, Mohrenstraße 58, Berlin 10117, Germany;3. University of Sheffield, 9 Mappin St., Sheffield S1 4DT, UK |
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Abstract: | We present an empirical investigation of the hypotheses that exchange rate uncertainty may have an impact on both the volume and variability of trade flows by considering a broad set of industrial countries' bilateral real trade flows over the period 1980–1998. Similar to the findings of earlier theoretical and empirical research, our first set of results shows that the impact of exchange rate uncertainty on trade flows is indeterminate. Our second set of results provides new and novel findings that exchange rate uncertainty has a consistent positive and significant effect on the volatility of bilateral trade flows, helping us better understand macroeconomic volatility. |
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Keywords: | F17 F31 C22 |
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