Exchange rate uncertainty and trade growth—a comparison of linear and non‐linear (forecasting) models

Helmut Herwartz and Henning Weber

Applied Stochastic Models in Business and Industry, 2005, vol. 21, issue 1, 1-26

Abstract: A huge body of empirical and theoretical literature has emerged on the relationship between foreign exchange (FX) uncertainty and international trade. Empirical findings about the impact of FX uncertainty on trade figures are at best weak and often ambiguous with respect to its direction. Almost all empirical contributions assume and estimate a linear relationship. Possible nonlinearity or state dependence of causal links between FX uncertainty and trade has been mostly ignored yet. In addition, widely used regression models have not been evaluated in terms of ex‐ante forecasting. In this paper we analyse the impact of FX uncertainty on sectoral categories of multilateral exports and imports for 15 industrialized economies. We particularly provide a comparison of linear and non‐linear models with respect to ex‐ante forecasting. In terms of average ranks of absolute forecast errors non‐linear models outperform both, a common linear model and some specification building on the assumption that FX uncertainty and trade growth are uncorrelated. Our results support the view that the relationship of interest might be non‐linear and, moreover, lacks of homogeneity across countries, economic sectors and when contrasting imports vs exports. Copyright © 2005 John Wiley & Sons, Ltd.

Date: 2005
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.1002/asmb.547

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wly:apsmbi:v:21:y:2005:i:1:p:1-26

Access Statistics for this article

More articles in Applied Stochastic Models in Business and Industry from John Wiley & Sons
Bibliographic data for series maintained by Wiley Content Delivery ().