Investigation of the Relationship between the Intensity of International Trade and the Volatility of Paired Exchange Rates of the Russian Federation and its Trading Partners

Исследование взаимосвязи интенсивности международной торговли и волатильности парных валютных курсов Российской Федерации и ее торговых партнеров

Yuriy Ponomarev, Alexey Rey and Дарья Радченко

Working Papers from Russian Presidential Academy of National Economy and Public Administration

Abstract: This study analyzes the interaction of intensity of bilateral trade in goods and volatility of pairwise exchange rates between Russia and its major trade partners. While the bulk of existing economic literature considers mainly the one-side causal link from exchange rate volatility to trade in goods, and the negative impact of exchange rate fluctuations on the normal course of export and import transactions, this paper estimates simultaneously (for the first time for Russian trade data) the inverse relationship. This paper synthesizes a wide range of macro- and microeconomic data, including variables drawn from customs declarations. It also explores the effect on real effective exchange rate (REER) volatility of differences in short-term interest rates and stock markets' rates of growth in dyadic relationships between Russia and its trade partners. The study does not find support in statistical data for the hypothesis of impact of REER volatility on bilateral trade intensity, while the inverse hypothesis is shown to be statistically significant. Credit rate, macroeconomic trade intensity, and microstructural (based on customs declarations' data) channels have major impact on REER volatility in the sample dataset.

Pages: 75 pages
Date: 2018-06
New Economics Papers: this item is included in nep-cis and nep-int
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