Conditional Exchange-Rate Volatility and the Volume of International Trade: Evidence from the Early 1900s

Susan Pozo

The Review of Economics and Statistics, 1992, vol. 74, issue 2, 325-29

Abstract: Exports from Britain to the United States from 1900 to 1940 are examined to ascertain the effect of exchange-rate volatility on the volume of trade. In addition to using a rolling standard deviation measure of exchange-rate uncertainty, the conditional variance of the exchange-rate series modeled.as a generalized autoregressive conditional heteroskedastic process is used to generate an alternative measure of exchange-rate uncertainty. The results of estimation using the two measures of exchange-rate volatility suggest that increases in the volatility of the real exchange rate reduce the volume of trade. Copyright 1992 by MIT Press.

Date: 1992
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