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The effects of exchange rate volatility on international trade flows: evidence from panel data analysis and fuzzy approach

Author

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  • Elif Nuroglu

    (International University of Sarajevo, Faculty of Business and Administration, Sarajevo, Bosnia and Herzegovina)

  • Robert M. Kunst

    (University of Vienna, Department of Economics, Vienna, Austria)

Abstract

The aim of this paper is to analyze the effects of exchange rate volatility on international trade flows by using two different approaches, the panel data analysis and fuzzy logic, and to compare the results. To a panel with the cross- section dimension of 91 pairs of EU15 countries and with time ranging from 1964 to 2003, an extended gravity model of trade is applied in order to determine the effects of exchange rate volatility on bilateral trade flows of EU15 countries. The estimated impact is clearly negative, which indicates that exchange rate volatility has a negative influence on bilateral trade flows. Then, this traditional panel approach is contrasted with an alternative investigation based on fuzzy logic. The key elements of the fuzzy approach are to set fuzzy decision rules and to assign membership functions to the fuzzy sets intuitively based on experience. Both approaches yield very similar results and fuzzy approach is recommended to be used as a complement to statistical methods.

Suggested Citation

  • Elif Nuroglu & Robert M. Kunst, 2012. "The effects of exchange rate volatility on international trade flows: evidence from panel data analysis and fuzzy approach," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 30(1), pages 9-31.
    • Handle: RePEc:rfe:zbefri:v:30:y:2012:i:1:p:9-31
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    References listed on IDEAS

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    Cited by:

    1. Elif Nuroğlu & Robert Kunst, 2014. "Competing specifications of the gravity equation: a three-way model, bilateral interaction effects, or a dynamic gravity model with time-varying country effects?," Empirical Economics, Springer, vol. 46(2), pages 733-741, March.
    2. Domagoj Sajter, 2015. "When Can We Call It “Extraordinary Circumstances”? Examination of Currency Exchange Rate Shocks," MIC 2015: Managing Sustainable Growth; Proceedings of the Joint International Conference, Portorož, Slovenia, 28–30 May 2015,, University of Primorska, Faculty of Management Koper.

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    More about this item

    Keywords

    linguistic modeling; fuzzy relations; exchange rate volatility; bilateral trade; gravity model;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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