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Does the risk of exchange rate fluctuation really affect international trade flows between countries?

Author

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  • Chongcheul Cheong

    (Pusan National University)

Abstract

This paper investigates the effect of exchange rate volatility on the UK's import trade. As part of econometric problems arising from a measured volatility, we consider a special case when an ARCH type auxiliary model is used to measure uncertainty in the exchange rate, and discuss a procedure for the correct inference of the OLS estimates of a primary equation in the second stage, which includes the generated variable. By applying this two-step approach, we find a statistically significant, negative impact of exchange rate uncertainty on Britain''s imports.

Suggested Citation

  • Chongcheul Cheong, 2004. "Does the risk of exchange rate fluctuation really affect international trade flows between countries?," Economics Bulletin, AccessEcon, vol. 6(4), pages 1-8.
    • Handle: RePEc:ebl:ecbull:eb-04f10002
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    File URL: http://www.accessecon.com/pubs/EB/2004/Volume6/EB-04F10002A.pdf
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    References listed on IDEAS

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    Cited by:

    1. Kim, Sokchea, 2006. "An Analysis of Cambodia’s Trade Flows: A Gravity Model," MPRA Paper 21461, University Library of Munich, Germany.
    2. V Polodoo & B Seetanah & Sannassee R. V, 2016. "Exchange rate volatility and manufacturing trade: Evidence from Africa," Journal of Developing Areas, Tennessee State University, College of Business, vol. 50(5), pages 241-256, Special I.
    3. Ezeanyeji Clement I. & Onwuteaka Ifeoma. C., 2016. "Determinants of Exchange Rate Sensitivity on the Nigerian Manufacturing Sector," Economy, Asian Online Journal Publishing Group, vol. 3(1), pages 40-50.
    4. Liu, Zugang & Nagurney, Anna, 2011. "Supply chain outsourcing under exchange rate risk and competition," Omega, Elsevier, vol. 39(5), pages 539-549, October.
    5. Atif Kafayat, 2014. "Effects of Exchange Rate Instability on Imports and Exports of Pakistan," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 2(2), pages 205-215, April.

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    More about this item

    Keywords

    ARCH model Consistent OLS estimation Exchange rate fluctuations International trade;

    JEL classification:

    • F1 - International Economics - - Trade
    • G1 - Financial Economics - - General Financial Markets

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