Currency Hedging and Goods Trade

Shang-Jin Wei

No 6742, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: A puzzle in empirical international finance is the difficulty in finding a large and negative effect of exchange rate volatility on international trade. A common explanation is the availability of hedging instruments. This paper examines the empirical validity of this explanation using data on over 1,000 country pairs. Which countries have currency hedging instruments is not perfectly observable. This paper deals with the problem by specifying an endogenous regime-switching regression. There are two main findings. First, there is no evidence in the data to support the validity of the hedging hypothesis. Second, for country pairs with large trade potential, exchange rate volatility deters goods trade to an extent much larger than that typically has been documented in the literature (without using the switching regression specification).

JEL-codes: F3 F31 (search for similar items in EconPapers)
Date: 1998-09
New Economics Papers: this item is included in nep-cfn and nep-ifn
Note: IFM ITI
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Published as European Economic Review, Vol. 43, no. 7 (June 1999): 1371-1394.

Downloads: (external link)
http://www.nber.org/papers/w6742.pdf (application/pdf)

Related works:
Journal Article: Currency hedging and goods trade (1999)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:6742

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w6742

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().