The Effects of the Real Exchange Rate Volatility and Misalignments on Foreign Trade Flows in Uzbekistan

34 Pages Posted: 18 Dec 2010

See all articles by Rosa Capolupo

Rosa Capolupo

Università degli Studi di Bari “Aldo Moro” (UNIBA)

Lars Jonung

Lund University - Dept. of Economics

Date Written: 2008

Abstract

This study documents a quantitative analysis of exchange rate volatilities and misalignment in Uzbekistan for the period of 1994q3–2005q2. The results suggest that the real exchange rate volatility and misalignment have depressing effects on the volume of trade, mainly exports in Uzbekistan. The Government's currency rationing policy was lessening the volatility proving that the policy-induced changes in exchange rate has a stabilizing effect on trade flows. The implied elasticity for the most significant real exchange rate volatility coefficient is –0.20. Using a two-step Engle-Granger technique import demand and export supply price elasticities are computed. The results are consistent with the predictions from a number of previous studies, and in particular, the estimated exports price elasticity for Uzbek economy ranges from 1.65 to 1.84, while import demand price elasticity is between –0.78 and –0.83. At the same time, relatively lower elasticity during “the currency rationing” period indicate that large devaluations, most likely, did not generate the expected improvements in the overall export performance.

Keywords: Real exchange rate, volatility, misalignment, trade flows, Uzbekistan

JEL Classification: C32, F41

Suggested Citation

Capolupo, Rosa and Jonung, Lars, The Effects of the Real Exchange Rate Volatility and Misalignments on Foreign Trade Flows in Uzbekistan (2008). Economics Discussion Paper No. 2008-29, Available at SSRN: https://ssrn.com/abstract=1726684 or http://dx.doi.org/10.2139/ssrn.1726684

Rosa Capolupo (Contact Author)

Università degli Studi di Bari “Aldo Moro” (UNIBA) ( email )

Via Camillo Rosalba, 53
Faculty of Economics
70124 Bari
Italy
+39 080 504 9039 (Phone)
+39 080 5049149 (Fax)

Lars Jonung

Lund University - Dept. of Economics ( email )

Box 7080
Lund, 22007
Sweden

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