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Malaysia-EU trade at the industry level: Is there an asymmetric response to exchange rate volatility?

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  • Mohsen Bahmani-Oskooee

    (University of Wisconsin-Milwaukee)

  • Muhammad Aftab

    (University of Malaya)

Abstract

Aftab et al. (Empirica 43:461–485, 2016) in this journal assessed the impact of exchange rate volatility on Malaysia-EU trade at commodity level using the linear ARDL approach of Pesaran et al. (J Appl Econom 16:289–326, 2001) and did not find significant effects in most of the 81 Malaysian exporting and 66 importing industries. In this paper, we argue for asymmetric effects of exchange rate volatility on the same industries’ trades which implies using Shin et al.’s (Festschrift in Honor of Peter Schmidt, Springer, New York, 2014) nonlinear ARDL approach. While we find short-run asymmetric effects of volatility in almost all industries, we find evidence of adjustment asymmetry in 17 exporting and nine importing industries. We also find significant impact or short-run cumulative asymmetry in 12 exporting and six importing industries. The most important finding is significant long-run asymmetric effects in 36 Malaysian exporting industries and 25 Malaysian importing industries. Clearly, trade flows react to an increased exchange rate volatility differently than to a decreased volatility.

Suggested Citation

  • Mohsen Bahmani-Oskooee & Muhammad Aftab, 2018. "Malaysia-EU trade at the industry level: Is there an asymmetric response to exchange rate volatility?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 45(3), pages 425-455, August.
    • Handle: RePEc:kap:empiri:v:45:y:2018:i:3:d:10.1007_s10663-017-9367-5
    DOI: 10.1007/s10663-017-9367-5
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    Cited by:

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    2. Mahdi Ghodsi & Mohammad Sharif Karimi & Robert Stehrer, 2020. "Does Asymmetric Nonlinear Approach Explain the Relationship Between Exchange Rate and Trade of Iran?," wiiw Working Papers 187, The Vienna Institute for International Economic Studies, wiiw.
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    4. Jungho Baek & Yoon Jung Choi, 2020. "Do oil price changes really matter to the trade balance? Evidence from Korea‐ASEAN commodity trade data," Australian Economic Papers, Wiley Blackwell, vol. 59(3), pages 250-278, September.

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    More about this item

    Keywords

    Exchange rate volatility; Asymmetry effects; Commodity trade; Malaysia; US; Nonlinear ARDL;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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