Why is it so Difficult to Find an Effect of Exchange Rate Risk on Trade?

Franc Klaassen

No 133, Econometric Society World Congress 2000 Contributed Papers from Econometric Society

Abstract: It is commonly argued that exchange rate risk depresses international trade. However, the large literature on this subject has not yet provided conclusive evidence. This paper analyzes why it is so difficult to obtain a clear answer from time series analyses. We use data on bilateral aggregate U.S. exports to the other G7 countries. The results show that export decisions are mostly affected by the exchange rate about one year later. The riskiness of the exchange rate at such a long horizon appears fairly constant over time with only short-term fluctuations. This makes it difficult to discover the true effect of exchange risk on trade from the limited time series data that are typically available.

Date: 2000-08-01
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Journal Article: Why is it so difficult to find an effect of exchange rate risk on trade? (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ecm:wc2000:0133

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