The Threshold Effect of Exchange Rate Volatility on Trade Volume: Evidence from G-7 Countries

Yanhong Zhang, Hui Chang and Jean Gauger

International Economic Journal, 2006, vol. 20, issue 4, 461-476

Abstract: This paper uses a threshold model to examine a possible threshold effect in the impact of exchange rate volatility on trade volume for the bilateral trade volumes between the US and other G-7 countries. A grid-searching method is used to obtain the threshold points, and time-series econometric techniques are applied to estimate the long run stable relationships as well as short-run dynamics. The results support the existence of nonlinearity in the effect of exchange rate volatility, and indicate that trade volume tends to increase when exchange rate volatility surpasses a certain threshold point.

Keywords: Exchange rate volatility; trade; threshold (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (7)

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DOI: 10.1080/10168730601027039

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