Estimating the Effects of Exchange Rate Volatility on Export Volumes

Kai-Li Wang and Christopher Barrett

Journal of Agricultural and Resource Economics, 2007, vol. 32, issue 2, 31

Abstract: This paper takes a new empirical look at the long-standing question of the effect of exchange rate volatility on international trade flows by studying the case of Taiwan's exports to the United States from 1989-1998. In particular, we employ sectoral-level, monthly data and an innovative multivariate GARCH-M estimator with corrections for leptokurtic errors. This estimator allows for the possibility that traders' forward-looking contracting behavior might condition the way in which exchange rate movement and associated risk affect trade volumes. Change in importing country industrial production and change in the expected exchange rate are found to jointly drive the trade volumes. More strikingly, monthly exchange rate volatility affects agricultural trade flows, but not trade in other sectors. These results differ significantly from those obtained using more conventional and restrictive modeling assumptions.

Keywords: International; Relations/Trade (search for similar items in EconPapers)
Date: 2007
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Citations: View citations in EconPapers (38)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:jlaare:8643

DOI: 10.22004/ag.econ.8643

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