DOES EXCHANGE-RATE VOLATILITY AFFECT INTERNATIONAL TRADE FLOWS?
The theoretical model of Viaene and de Vries(1992) is presented and an empirical confirmation of its implications concerning the effects of exchange-rate volatility is performed. Positive exchange-rate effects in the presence of a well-developed forward market are documented. When exporters [importe...
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| Format: | Article |
| Language: | English |
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People & Global Business Association (P&GBA)
2007-03-01
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| Series: | Global Business and Finance Review |
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| Online Access: | http://www.gbfrjournal.org/pds/journal/thesis/20150623114822-DFOBC.pdf |
| Summary: | The theoretical model of Viaene and de Vries(1992) is presented and an empirical confirmation of its implications concerning the effects of exchange-rate volatility is performed. Positive exchange-rate effects in the presence of a well-developed forward market are documented. When exporters [importers] benefit from changes in exchange-rate volatility., then importers [exporters] necessarily lose. Therefore, the sign of the effect of exchange-rate volatility on trade can, and in some situation should, be positive. In addition evidence that trade balance (as a proxy for net currency position) is essential in determining the effect of exchange-rate volatility on trade flows is provided. Failing to take trade balance into account may help explain why the effect of exchange-rate uncertainty on trade has often been small in magnitude and or statistically insignificant in numerous prior studies. |
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| ISSN: | 1088-6931 2384-1648 |