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On the (nonlinear) relationship between exchange rate uncertainty and trade: An investigation of US trade figures in the Group of Seven

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  • Herwartz, Helmut

Abstract

In this paper bilateral models formalizing monthly growth of US imports and exports are employed to investigate the potential of nonlinear relationships linking exchange rate uncertainty and trade growth. Parametric linear and nonlinear as well as semiparametric time series models are evaluated in terms of fitting and ex ante forecasting. The overall impact of exchange rate variations on trade growth is found to be weak. In periods of large exchange rate variations, trade growth forecasts gain from conditioning on volatility. Empirical results support the view that the relationship of interest might be nonlinear and, moreover, lacks homogeneity across countries and imports vs. exports

Suggested Citation

  • Herwartz, Helmut, 2003. "On the (nonlinear) relationship between exchange rate uncertainty and trade: An investigation of US trade figures in the Group of Seven," SFB 373 Discussion Papers 2003,2, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    • Handle: RePEc:zbw:sfb373:20032
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    Citations

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    Cited by:

    1. Erdal Demirhan & Banu Demirhan, 2015. "The Dynamic Effect of ExchangeRate Volatility on Turkish Exports: Parsimonious Error-Correction Model Approach," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 62(4), pages 429-451, September.
    2. Michał Brzozowski & Grzegorz Tchorek, 2017. "Exchange Rate Risk as an Obstacle to Export Activity," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 3, pages 115-141.
    3. Muteba Mwamba, John & Dube, Sandile, 2014. "The impact of exchange rate volatility on international trade between South Africa, China and USA: The case of the manufacturing sector," MPRA Paper 64389, University Library of Munich, Germany.
    4. Theo Panagiotidis & Mark J Holmes, 2005. "Sustainability and Asymmetric Adjustment: Some New Evidence Concerning Behaviour of the US Current Account," Money Macro and Finance (MMF) Research Group Conference 2005 29, Money Macro and Finance Research Group.
    5. Zwinkels, Remco C.J. & Beugelsdijk, Sjoerd, 2010. "Gravity equations: Workhorse or Trojan horse in explaining trade and FDI patterns across time and space?," International Business Review, Elsevier, vol. 19(1), pages 102-115, February.

    More about this item

    Keywords

    Exchange rate volatility; international trade; ARCH; Group of Seven; forecasting;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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