Denaux run. Cheong 2004 examines the possible impact

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Last updated: May 6, 2019

Denaux and Falks 2012 had examined theeffect of exchange rate variations on bilateral trade flows between Turkey andits 5 major trade partners in the European Union (EU).

The effect of exchangerate volatility on trade was examined by an OLS method used quarterly data from1988 to 2011. In this study they found that exchange rate volatility does nothave a statistically a major effect on import demand, that the import demand ofTurkish was determined by income and currency appreciation, and also in 2008euro crises did not have a significant effect on imports. In this study theyonly evaluated the impact of exchange rate volatility on Turkey’s aggregatedimport demand collecting the data from the selected EU countries which accountsfor almost half of total imports of Turkey which is the limitation of the study.AnhMai Thi Van 2012 has showedthe relationship between exchange rate volatility and trade flow which mainly emphaseson examining the influence of exchange rate instability on exports from Swedento Germany. In this study Auto Regressive Distributed Lag (ARDL) model wasemployed to find the evaluations of the long run equilibrium as well as shortrun dynamics. The results of this paper showed that the exchange rate volatilityhas significant short run effects on export value while there are nosignificant effect in long run.

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Cheong2004 examines the possible impact of exchangerate volatility on the United Kingdom’s import. In this paper ARCH typeauxiliary model was used to measure uncertainty in the exchange rate, and inthe second stage they discuss a correct procedure of the OLS estimates for the primaryequation, which includes the generated variable. They applied two?stepapproach, where they found a statistically negative impact of exchange rate volatilityon UK’s imports. The implication of their finding to UKs macroeconomic policy wasthat if the country implements the Euro, there will be a significantly positiveeffect on UKs trade and the economic performance with reduced exchange rate fluctuations,even though the overall benefits would be partial because there will be stilluncertainty on the euro/dollar exchange rate.ChristopherF.

Baum and Mustafa Caglayan 2008 had presented an empirical study of the hypotheses thatexchange rate volatility may have an effect on both the volume and variabilityof trade ?ows by considering an extensive set of industrial countries’ mutualreal trade ?ows over the period 1980–1998. Similar to the ?ndings of previoustheoretical and empirical research, their ?rst set of results shown that the influenceof exchange rate volatility on trade ?ows is unspecified. In their second setof results provides new ?ndings that exchange rate instability has a reliablepositive and signi?cant effect on the exchange rate instability of bilateraltrade ?ows.Serenisand Tsounis 2014 examinedthe impact of exchange rate fluctuation for two small countries, Croatia andCyprus, on the aggregate exports of first quarter of 1990 to first quarter of2012. In this study, an unambiguous account of non stationarity was taken intoaccount and a multivariate co-integration error correction model was appliedfor both countries and two different measures of volatility. In which eachmodel satisfied numerous commonly used econometric tests in the analysis oftime-series data such that co-integration and unit roots. There empiricalanalysis suggested that exchange rate instability when measured as the simplestandard deviation of the log effective exchange has an influence on the levelof exports for both countries.

Nevertheless, when an alternate measure was usedin this study, there was an indication of an impact from movements of theexchange rate on the level of exports. As a result, there was a mixedstatistical significant relationship, for both countries in sample. First, theysuggested that additional measures of instability can be used to model theeffects of exchange rate instability to exports, thus indicating that there isno specific way of measuring volatility. Second, there results showed that highand low fluctuation produce a major negative long-run effect on the real exportsfor some countries. From a policy prospective, the paper suggested that policymakers should consider exchange rate volatility for some countries but not all,when applying economic policy, particularly, for those like Cyprus and Croatia,that it was found that the exchange rate instability had a positive impact on exports.Ekanayakeand Chatrna 2010 investigatesthe impact of exchange rate volatility on Sri Lankan’s exports to its maintrading partners.

In this paper, they used a generalized ARCH-type model(GARCH) to generate a measure of exchange rate instability which was then usedin a model of Sri Lankan exports. They used sectoral trade data which allows themto identify whether the impact of exchange rate instability differs dependingon the types of the merchandise traded. The results found in this study suggestedthat the effect of exchange rate volatility differs among different types ofgoods while it remains hard to firmly establish the nature of the affiliation. Inthis paper co-integration results shows that there exists a long-runrelationship among real exports and real foreign economic activity, realexchange rate volatility, and real exchange rate. Out of the eight productgroups, in which five of them having negative signs for the exchange rate instabilityvariable which indicating that exchange rate instability inclines to preventexports in the long-run, for these products.

In the error-correction results showedthat, in the short-run, exchange rate instability has a significant negative effecton Sri Lankan’s exports. They concluded that the results had obtained arefavorable to the hypothesis that exchange rate uncertainty depresses Sri Lankan’sexport volumes. The results of this paper recommended that stabilization of SriLankan rupee along with the exchange rate is definitely in the country’s bestinterest. Hence, Sri Lanka should implement tight monetary policy, such thatincrease of interest rates, to get these objectives.

ElAmrani2015 examined the effect of exchange rate instabilityand exchange rate systems of Norway with a generalized gravity model and anerror correction model using aggregate Nor- wegian data for Norway exports toUK and USA for the period 1900 to 2000. The ?ndings of this study suggestedthat exchange rate instability and exchange rate regimes had a negative butinsigni?cant effect on exports from Norway to United States. On the other hand,they found that the effect of exchange rate instability on exports from Norwayto the United Kingdom was positive, both in the short run and long run. Furthermore,the results suggested that an intermediate and ?oating exchange rate regime hada very minor negative, but insigni?cant effect on the trade ?ow.

In the case of UK, the results suggested thatexchange rate instability had a significant positive long-run effect on realexports from Norway to UK, whereas it played a considerably minor role in theshort-run. On the other hand, exchange rate regimes show a negative but minor effecton exports. The suggested explanation of the study for the di?erence among the short-run and long-run impactsof exchange rate volatility is that trade contracts often are”irreversible” in the short-run whereas in the longer run they becomemore “?exible” and the commodity traders are allowed to adjust bothprices and quantities, hence the estimated short-run impact is smaller than thelong-run impact.Genc and Artar 2014 examined two key objectives in this study to determine the effect ofexchange rates on imports and to examine the influence of exchange rates onexports of developing countries.

This study emphasized on inaugurating whetherthere was co-integrated relationship among effective exchange rates of specificdeveloping countries. In this paper they applied the panel co-integrationmethod on the data from 1985 to 2012. In the long run there was co-integrated associationamong exchange rates and imports and exports of developing countries. Errorcorrection parameters for export is negative and significant however there wasa long term affiliation between the actual exchange rate and exports.  The error correction parameter for import isnegative and statistically substantial and there is a long term relationshipbetween the effective exchange rate index and import.

Out of 22, 5 developingcountries (Bolivia, Cameroon, Dominica, Gabon and Mexico) have both long andshort term relationship and are statistically substantial. The paper concludesthat overall findings shows that exchange rate effects backing the estimatedresults for the selected developing countries. Yarmukhamedov2007 empirically investigatedthe impact of exchange rate fluctuations imports and exports of Sweden in this paper.

In this paper export and import volumes are deliberated from the point of theirdeterminants, plus exchange rate volatility, which had been measured throughEGARCH. The results this paper shown that short run dynamics of volatility adverselyrelated with both export and import, whereas deliberated from the case of priorperiod volatility it shows positive relationship. Wongand Lee 2016 investigatedthe effect of exchange rate instability on disaggregated bilateral exports ofMalaysia to China. In this study exchange rate volatility was estimated by thethreshold generalized autoregressive conditional heteroscedasticity (TGARCH)model. The Johansen co-integration analysis and the dynamic ordinary leastsquares (DOLS) estimator were used in the estimation. There was some indicationof exchange rate instability to have substantial effect on real exports. There waslong-run relationship between real export, real exchange rate and real foreigndemand.

This paper suggested that in the long run, exporters of Malaysia shoulddevelop their products through innovation and high technology. DANLADI et al 2015 evaluated the effect ofexchange rate fluctuations on international trade in Nigeria on the annual datafrom 1980 till 2013, the data was obtained from World Development Indicators(WDI). Exchange rate instability, interest rate, gross national product (GDP),investment, import and export were used to see the fundamental relationship amongexchange rate instability and international trade and also the long and short-runrelationship among exchange rate instability and international trade. For empiricalanalysis Augmented Dickey-Fuller (ADF) was used for checking stationary,followed by co-integration test, then the granger causality and the ErrorCorrection Model (ECM). The co-integration test showed that the variables areco-integrated which suggests that a long-run relationship exist among thevariables however the granger causality test indicated that a causalrelationship occur among international trade and exchange rate instability. By ECManalysis it was observed that exchange rate instability negatively impactsinternational trade. This study then recommended that the government should putin place exchange rate stability and trade policies that would promote bettertrade conditions that will support local production in the economy. In order toachieve this, the government should deliver effective infrastructural facilitieslike energy resources.

Barkoulaset al 2002 examines the impactof exchange rate instability on the volume and variability of trade flows. Theyemployed a signal extraction framework, where they showed that the directionand magnitude of importers and exporters optimum trading activities hinge onthe source of the instability. This framework also enabled them to classify theimpact of three different sources of exchange rate instability, which were relatedto a general microstructure shock, the behavior of the exchange rate essentials,and the indicating process of future policy advances.

They showed that thevariance of microstructure shocks to that exchange rate process negatively impactsboth the level and the inconsistency of trade flows. Nevertheless, thevariances of exchange rate essentials and the noise of the sign of imminentpolicy advances have uncertain influence on the level of trade flows but willbe negative and positive impacts, respectively, on the inconsistency of tradeflows. As the cause of exchange rate volatility does matter in defining its dynamiceffect on the behavior of trade, this paper suggests that empirical researchersshould try to estimate the components of exchange rate ambiguity and evaluatetheir specific impacts on trade volume and trade instability.


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