Exchange Rate Fluctuations and Trade Flows: Evidence From the European Union

Giovanni Dell'ariccia

No 1998/107, IMF Working Papers from International Monetary Fund

Abstract: This paper analyzes the effects of exchange rate volatility on bilateral trade flows. Through use of a gravity model and panel data from western Europe, exchange rate uncertainty is found to have a negative effect on international trade. The results seem to be robust with respect to the particular measures representing exchange rate uncertainty. Particular attention is reserved for problems of simultaneous causality. The negative correlation between trade and bilateral volatility remains significant after controlling for the simultaneity bias. However, a Hausman test rejects the hypothesis of the absence of simultaneous causality.

Keywords: WP; ERM E; exchange rate volatility; Exchange Rate; Volatility; Bilateral Trade; EMU; volatility coefficient; exchange rate uncertainty; standard deviation; EU trade; volatility measure; negative correlation; Exchange rates; Real exchange rates; Currencies; Plurilateral trade; Trade balance; Western Europe (search for similar items in EconPapers)
Pages: 27
Date: 1998-08-01
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Citations: View citations in EconPapers (9)

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Journal Article: Exchange Rate Fluctuations and Trade Flows: Evidence from the European Union (1999)
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