Exchange Rate Volatility and International Trade

J.M. Viaene and C.G. Vries De

Cahiers de recherche from Universite de Montreal, Departement de sciences economiques

Abstract: We Consider a Two-Period Model of the Trading Firm Which Encompasses Two Characteristics of Modern Trade: Trade Credits and Invoicing Habits. a Distinction Is Made Between Economies with Well-Developed Foreign Exchange Markets and Developing Economies with No Forward Exchange Markets. in Both Cases, the Primary Aim of This Paper Is to Give the Conditions Under Which International Trade Is Negatively Affected by Higher Exchange Rate Variability. in Developed Economies, the Theoretical Results Indicate That There Is a Priori No Well-Defined Proposition Governing the Relation Between Trade and Exchange Rate Flexibility. in Contrast, for Developing Economies with No Forward Exchange Markets, an Increase in Exchange Rate Volatility Is Shown to Hamper Trade in Most Cases Under Review.

Keywords: Exchange Rate; International Trade (search for similar items in EconPapers)
Date: Written 1987
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Persistent link: http://EconPapers.repec.org/RePEc:mtl:montde:8743

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