Does the risk of exchange rate fluctuation really affect international trade flows between countries?

Chongcheul Cheong ()
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Chongcheul Cheong: Pusan National University

Economics Bulletin, 2004, vol. 6, issue 4, 1-8

Abstract: This paper investigates the effect of exchange rate volatility on the UK's import trade. As part of econometric problems arising from a measured volatility, we consider a special case when an ARCH type auxiliary model is used to measure uncertainty in the exchange rate, and discuss a procedure for the correct inference of the OLS estimates of a primary equation in the second stage, which includes the generated variable. By applying this two-step approach, we find a statistically significant, negative impact of exchange rate uncertainty on Britain''s imports.

Keywords: ARCH; model; Consistent; OLS; estimation; Exchange; rate; fluctuations; International; trade (search for similar items in EconPapers)
JEL-codes: F1 G1 (search for similar items in EconPapers)
Date: 2004-05-04
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Citations: View citations in EconPapers (5)

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