US exports and time-varying volatility of real exchange rate |
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| Institution: | 1. Department of Business, Cameron University, Lawton, OK 73505, USA;2. Department of Economics and Finance, Murray State University, Murray, KY 42071, USA;1. Department of Economics, Faculty of Business and Economics, Eastern Mediterranean University, Cyprus;2. Department of Economics, Stellenbosch University, South Africa;3. Department of Economics, University of Pretoria, Pretoria 0002, South Africa;1. State Key Laboratory of Automotive Safety and Energy, Tsinghua University, Beijing 100084, China;2. China Automotive Energy Research Center (CAERC), Tsinghua University, Beijing 100084, China;1. POSTECH Entrepreneurship Centre, POSTECH, Republic of Korea;2. School of International Economics and Business, Yeungnam University, Republic of Korea;3. Plymouth Graduate School of Management, Mast House, Plymouth University, Drake Circus, Plymouth, Devon PL4 8AA, UK |
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| Abstract: | The effect of exchange rate volatility on trade is a controversial issue in international economics. Despite a widespread view that an increase in exchange rates volatility reduces trade, there is no real consensus on the direction or the size of the exchange rate volatility–trade level linkages. This paper investigates the relationship between US trade volume and exchange rate volatility using cointegration and error-correction models. We use conditional variances of the real effective exchange rate (REER) series modeled as a generalized autoregressive conditional heteroskedastic (GARCH) process to measure the exchange rate volatility. The cointegration results indicate a significant negative relationship between US export volume and exchange rate volatility. The short-run dynamics of the relationship, however, show that the effects of both real exchange rates and exchange rate volatility are insignificant. |
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