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Exchange Rate Volatility and International Trade

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  • Udo Broil
  • Bernhard Eckwert

Abstract

The purpose of this note is to show that a positive effect of exchange rate volatility on export production has a theoretical basis. The key to this claim is that, as the exchange rate volatility increases, so does the value of the real option to export to the world market. Higher volatility increases the potential gains from trade. This may explain part of the mixed empirical findings regarding the effects of exchange rate risk on international trade.

Suggested Citation

  • Udo Broil & Bernhard Eckwert, 1999. "Exchange Rate Volatility and International Trade," Southern Economic Journal, John Wiley & Sons, vol. 66(1), pages 178-185, July.
    • Handle: RePEc:wly:soecon:v:66:y:1999:i:1:p:178-185
    DOI: 10.1002/j.2325-8012.1999.tb00232.x
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    References listed on IDEAS

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    9. Udo Broll & Soumyatanu Mukherjee & Rudra Sensarma, 2020. "Risk preferences estimation of exporting firms under exchange rate uncertainty," Scottish Journal of Political Economy, Scottish Economic Society, vol. 67(1), pages 126-136, February.
    10. Anmar Pretorius & Heinrich Nel, 2018. "Disentangling the exchange rate risk, sectoral export flows and financial development nexus," Working Papers 733, Economic Research Southern Africa.
    11. Viviane Naimy & Rim El Khoury & José-María Montero & Jana Souk, 2023. "Post-Brexit exchange rate volatility and its impact on UK exports to eurozone countries: A bounds testing approach," Oeconomia Copernicana, Institute of Economic Research, vol. 14(1), pages 135-168, March.
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