A NEW LOOK AT THE TRADE VOLUME EFFECTS OF REAL EXCHANGE RATE RISK

Kai-Li Wang and Christopher Barrett

No 14751, Working Papers from Cornell University, Department of Applied Economics and Management

Abstract: This paper takes a new empirical look at the longstanding question of the effect of exchange rate volatility on international trade flows by studying the case of Taiwan's exports to the United States from 1989-1998. In particular, we employ sectoral level, monthly data and a multivariate GARCH-M estimator with corrections for leptokurtic errors that is consistent with the core hypothesis that traders' forward contracting behavior might be affected by exchange rate risk. We find that real exchange rate risk has insignificant effects in most sectors, although agricultural trade volumes appear highly responsive to real exchange rate volatility. These results differ significantly from those obtained using more conventional and restrictive modeling assumptions.

Keywords: International; Relations/Trade (search for similar items in EconPapers)
Pages: 23
Date: 2002
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:cudawp:14751

DOI: 10.22004/ag.econ.14751

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