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Exchange Rate Volatility and Agricultural Commodity Trade

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  • Steinbach, Sandro

Abstract

This paper is concerned with the relationship between exchange rate volatility and agricultural commodity trade. Since the Bretton Woods system had been established in 1973, many countries have moved from a fixed exchange rate system to a floating system. The increase in volatility has provoked considerable interest both in the theoretical and empirical trade literature. I contribute to the ongoing debate on the relationship between exchange rate volatility and commodity trade by testing for a causal effect at the commodity level. My empirical results provide evidence for a significant effect of exchange rate volatility on agricultural commodity trade. I find that the higher the exchange rate volatility between two countries is, the less these countries trade with each other. The magnitude of this effect varies widely, but is strongest for differentiated commodities. Lastly, I find that the use of the end-month volatility measure masks the true effect of exchange rate volatility as the measure provides significantly lower effect estimates.

Suggested Citation

  • Steinbach, Sandro, 2016. "Exchange Rate Volatility and Agricultural Commodity Trade," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235915, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea16:235915
    DOI: 10.22004/ag.econ.235915
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    References listed on IDEAS

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