On the Sensitivity of the Volume and Volatility of Bilateral Trade Flows to Exchange Rate Uncertainty

Christopher Baum () and Mustafa Caglayan ()

No 641, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: We present an empirical investigation of the hypotheses that exchange rate volatility 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 volatility has a consistent positive and significant effect on the volatility of bilateral trade flows, helping us better understand macroeconomic volatility.

Keywords: exchange rates; volatility; fractional integration; trade flows (search for similar items in EconPapers)
JEL-codes: F17 F31 C22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cba, nep-fmk and nep-int
Date: 2006-04-16, Revised 2008-02-06
Note: previously circulated as "Effects of Exchange Rate Volatility on the Volume and Volatility of Bilateral Exports"
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Forthcoming, Journal of International Money and Finance

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Persistent link: http://EconPapers.repec.org/RePEc:boc:bocoec:641

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