A New Look at Exchange Rate Volatility and Trade Flows

Peter Clark, Shang-Jin Wei, Natalia Tamirisa, Azim Sadikov and Li Zeng

No 2004/009, IMF Occasional Papers from International Monetary Fund

Abstract: The effect of exchange rate volatility on trade flows was examined by a 1984 IMF study on G-7 countries. Over the past two decades, many developments in the world economy, such as the currency crises in the 1990s and increasing cross-border capital flows, may have exacerbated exchange rate volatility, while others, such as a deepening of the market in foreign exchange hedging instruments, may have reduced the impact of volatility on trade flows. Using recent advances in the economic theories on trade and in statistical methodologies, this paper revisits this important issue by taking into account these new developments and examining their effects on developing and transition economies, as well as on developed countries.

Keywords: OP; exchange rate volatility; exchange rate; trade; country; nominal exchange rate; exchange rate fluctuation; exchange rate variability; volatility measure; exchange rate movement; Exchange rates; Real exchange rates; Plurilateral trade; Exchange rate arrangements; International trade organizations; Western Hemisphere; Africa; Global; Middle East; Central and Eastern Europe; exchange rate uncertainty; Nominal effective exchange rate; Real effective exchange rates (search for similar items in EconPapers)
Pages: 63
Date: 2004-09-30
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Citations: View citations in EconPapers (49)

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