The impacts of exchange rate volatility on vegetable trade flows

Trade flows of commodities are generally affected by the principles of comparative advantage in a free trade. However, trade flows might be enhanced or distorted not only by various government interventions, but also by exchange rate fluctuations among others. This study applies a commodity-specific gravity model to selected vegetable trade flows among Organization for Economic Co-operation and Development (OECD) countries to determine the effects of exchange rate uncertainty on the trade flows. Using the data from 1996 to 2002, the results show that, while the exchange rate uncertainty significantly reduces trade in the majority of commodity flows, there is evidence that both short- and long-term volatility have positive effect on trade flows of specific commodities. This study also tests the regional preferential trade agreements such as the North American Free Trade Agreement (NAFTA), the Asia-Pacific Economic Cooperation (APEC) and the EU, and their different effects on commodities.

Forecasting exchange rate volatility using conditional variance models selected by information criteria

This paper uses appropriately modified information criteria to select models from the GARCH family, which are subsequently used for predicting US dollar exchange rate return volatility. The out of sample forecast accuracy of models chosen in this manner compares favourably on mean absolute error grounds, although less favourably on mean squared error grounds, with those generated by the commonly used GARCH(1, 1) model. An examination of the orders of models selected by the criteria reveals that (1, 1) models are typically selected less than 20% of the time.

Modelling Fiji-US exchange rate volatility

In this article, we examine the Fiji-US exchange rate volatility using daily data for the period 2000 to 2006. Our modelling framework is based on the EGARCH model. We find robust evidence of conditional shocks having a positive effect on exchange rate volatility, shocks having asymmetric effects on exchange rate volatility and shocks having a transitory effect on exchange rate volatility.

Growth and exchange rate volatility: a panel data analysis

The aim of this article is to assess the role of real effective exchange rate volatility on long-run economic growth for a set of 82 advanced and emerging economies using a panel data set ranging from 1970 to 2009. With an accurate measure for exchange rate volatility, the results for the two-step system GMM panel growth models show that a more (less) volatile RER has significant negative (positive) impact on economic growth and the results are robust for different model specifications. In addition to that, exchange rate stability seems to be more important to foster long-run economic growth than exchange rate misalignment

Corporate risk management and exchange rate volatility in Latin America

Includes bibliography

Corporate risk management and exchange rate volatility in Latin America

Includes bibliography

The Effect of Exchange Rate Volatility on International Trade: The Implication for Production Networks in East Asia

This paper is an empirical investigation of the relationship between exchange rate volatility and international trade, focusing on East Asia. It finds that intra-East Asian trade is discouraged by exchange rate volatility more seriously than trade in other regions because intermediate goods trade in production networks, which is quite sensitive to exchange rate volatility compared with other types of trade, occupies a significant fraction of trade. In addition, this negative effect of volatility is mainly induced by the unanticipated volatility and has an even greater impact than that of tariffs.

Real exchange rate volatility, financial crises and nominal exchange regimes

This paper examines the sources of real exchange rate (RER) volatility in eighty countries around the world, during the period 1970 to 2011. Our main goal is to explore the role of nominal exchange rate regimes and financial crises in explaining the RER volatility. To that end, we employ two complementary procedures that consist in detecting structural breaks in the RER series and decomposing volatility into its permanent and transitory components. The results confirm that exchange rate volatility does increase with the global financial crises and detect the existence of an inverse relationship between the degree of flexibility in the exchange rate regime and RER volatility using a de facto exchange rate classification.

Going Multinational under Exchange Rate Uncertainty

Published as an article in: Journal of International Money and Finance, 2010, vol. 29, issue 6, pages 1171-1191.

A Double-threshold GARCH Model for the French Franc/Deutschmark exchange rate

This paper combines and generalizes a number of recent time series models of daily exchange rate series by using a SETAR model which also allows the variance equation of a GARCH specification for the error terms to be drawn from more than one regime. An application of the model to the French Franc/Deutschmark exchange rate demonstrates that out-of-sample forecasts for the exchange rate volatility are also improved when the restriction that the data it is drawn from a single regime is removed. This result highlights the importance of considering both types of regime shift (i.e. thresholds in variance as well as in mean) when analysing financial time series.

Trade effects of exchange rate fluctuations: Evidence from Sweden

An overview of the theoretical literature for the last two decades suggests that there is no clear-cut relationship one can pin down between exchange rate volatility and trade flows. Analytical results are based on specific assumptions and only hold in certain cases. Especially, the impact of exchange rate volatility on export and import activity investigated separately leads also to dissimilar conclusions among countries studied. The general presumption is that an increase in exchange rate volatility will have an adverse effect on trade flows and consequently, the overall heath of the world economy. However, neither theoretical models nor empirical studies provide us with a definitive answer, leaving obtained results highly ambiguous and inconsistent (Baum and Caglayan, 2006). We purposed to empirically investigate trade effects of exchange rate fluctuations in Sweden from the perspective of export and import in this research. The data comprises period from January 1993 to December 2006, where export and import volumes are considered from the point of their determinants, including exchange rate volatility, which has been measured through EGARCH model. The results for the case of Sweden show that short run dynamics of volatility negatively associated with both export and import, whereas considered from the case of previous period volatility it exhibits positive relationship. These results are consistent with the most findings of prior studies, where the relationship remained ambiguous.

A model of the Australia-US exchange rate

This paper develops a model of exchange rate determination within an error correction framework. The intention is to identify both long and short term determinants that can be used to forecast the AUD/US exchange rate. The paper identifies a set of significant variables associated with exchange rate movements over a twenty year period from 1984 to 2004. Specifically, the overnight interest rate differential, Australia's foreign trade-weighted exposure to commodity prices as well as exchange rate volatility are variables identified that are able explain movements in the AUDIUS dollar relationship. An error correction model is subsequently constructed that incorporates an equilibrium correction term, a short-term interest rate differential variable, a commodity price variable and a proxy for exchange rate volatility. The model is then used to forecast out of sample and is found to dominate a naIve random walk model based on three different metrics.