Trade and Investment Performance Under Floating Exchange Rates: The U.S. Experience

International Monetary Fund

No 1988/037, IMF Working Papers from International Monetary Fund

Abstract: Contrary to the arguments of several scholars, we have failed to find either a conclusive theoretical case or clear empirical evidence of an effect, harmful or otherwise, of exchange rate variability (as measured by either short-term volatility or long-run misalignment) on overall levels of international trade. In this paper, after reviewing the theories and evidence on this issue, we go on to consider the impact of exchange rate variability on direct foreign investment. We summarize and amplify upon the scant theoretical literature of this issue, and proceed to test U.S. data for the presence of such an impact. We find none.

Keywords: WP; exchange rate; trade; price; exchange rate variability; yield; exchange rate volatility; volatility hampers trade; international exchange rate regime; market equilibrium exchange rate; exchange rate variation; exchange rate movement; financial asset; aggregate trade study; unit value index; short-term exchange rate volatility; oil price shock; Exchange rates; Real exchange rates; Foreign direct investment; Exchange rate adjustments; Exchange rate arrangements; Europe (search for similar items in EconPapers)
Pages: 24
Date: 1988-01-01
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