Investigating Non-Linearities in the Relationship Between Real Exchange Rate Volatility and Trade

Olivier Bonroy, Jean-Philippe Gervais () and Bruno Larue
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Bruno Larue: CRÉA, Laval University

International Finance from University Library of Munich, Germany

Abstract: Production and marketing lags in agri-food supply chains force competitive primary producers and food processors to commit to output targets before prices and exchange rates are realized. A theoretical model with one processor and many price-taking primary producers is developed to show that an increase in the volatility of the export price generally increases exports under risk neutrality. Furthermore, relaxing the assumption that the processing firm is risk neutral introduces non- linearities in the relationship between exports and export price volatility. This relationship is empirically investigated using the flexible non-linear inference framework developed by Hamilton (2001). The theoretical model provides the foundation for empirical bilateral export equations for Canadian pork exports to the U.S. and Japan. The empirical investigation supports the hypothesis that export price volatility has statistically significant non-linear effects on Canadian pork exports.

Keywords: Exchange rate volatility; non-linear flexible inference; production lags; pork exports (search for similar items in EconPapers)
JEL-codes: C32 Q17 (search for similar items in EconPapers)
Date: 2005-01-27
New Economics Papers: this item is included in nep-rmg
Note: Type of Document - pdf
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpif:0501003

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