The asymmetric effects of exchange rate volatility on US–Pakistan trade flows: new evidence from nonlinear ARDL approach

Javed Iqbal (), Sabahat Aziz () and Misbah Nosheen ()
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Javed Iqbal: Quaid-i-Azam University
Sabahat Aziz: Quaid-i-Azam University
Misbah Nosheen: Hazara University

Economic Change and Restructuring, 2022, vol. 55, issue 1, No 7, 225-255

Abstract: Abstract Earlier studies that examined the response of trade flows to exchange rate volatility relied on the assumption that increased volatility and decreased volatility behave in a symmetric way; however, due to change in expectations of traders toward increasing volatility and decreasing volatility, the effects could be asymmetric; hence, the empirical results of these studies are supposed to have masked by the restricted assumption of symmetry between exchange rate and trade flows. This study investigates both the symmetric and asymmetric effects of exchange rate volatility on trade flows between Pakistan and USA at industry level over the period 1981–2018. We find evidence of a significant effect of asymmetric exchange rate volatility on trade flows in almost one-half (1/2) of importing and exporting industries of Pakistan that trade with the USA both in the short run and in the long run.

Keywords: Asymmetric effects; Exchange rate volatility; Commodity trade; Pakistan; USA; Nonlinear ARDL (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10644-020-09310-8

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