Exchange Rate Effects on the Volume and Variability of Trade Flows

John Barkoulas, Christopher Baum and Mustafa Caglayan ()

No 405., Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: This paper investigates the effects of exchange rate uncertainty on the volume and variability of trade flows. Employing a signal extraction framework, we show that the direction and magnitude of importers' and exporters' optimal trading activities depend upon the source of the uncertainty (general economic shocks, fundamental factors driving the exchange rate process, or noise in the signal of policy innovations), providing a rationale for the contradictory empirical evidence in the literature. We also show that exchange rate uncertainty emanating from general economic shocks and the fundamental factors reduces the variability of trade flows, while that related to noise in the signal of policy innovations increases variability.

Keywords: trade flows; signal extraction; exchange rate volatility (search for similar items in EconPapers)
JEL-codes: F11 F17 (search for similar items in EconPapers)
Date: 1998-03-30, Revised 2001-09-12
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Citations: View citations in EconPapers (14)

Published 2002, Journal of International Money and Finance, 21, 481-496.

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Related works:
Journal Article: Exchange rate effects on the volume and variability of trade flows (2002)
Working Paper: Exchange Rate Effects on the Volume and Variability of Trade Flows (1998)
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Persistent link: https://EconPapers.repec.org/RePEc:boc:bocoec:405

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