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Why is it So Difficult to Find an Effect of Exchange Rate Risk on Trade?

CentER Working Paper No. 1999-73

27 Pages Posted: 2 Feb 2000  

Franc J. G. M. Klaassen

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM); Tinbergen Institute

Date Written: 1999

Abstract

The question whether exchange rate risk affects trade has received considerable attention in the literature. However, the conclusions are still mixed. This paper analyzes why it is so difficult to obtain a clear answer from time series analyses. We use data on bilateral aggregate US exports to the other G7 countries. The results show that export decisions are mostly affected by the exchange rate about one year later. The riskiness of the exchange rate at such a long horizon appears fairly constant over time with only short-term fluctuations. This makes it difficult to discover the true effect of exchange risk on trade from the limited time series data that are typically available.

JEL Classification: C22, C51, F14, F31

Suggested Citation

Klaassen, Franc J. G. M., Why is it So Difficult to Find an Effect of Exchange Rate Risk on Trade? (1999). CentER Working Paper No. 1999-73. Available at SSRN: https://ssrn.com/abstract=199903 or http://dx.doi.org/10.2139/ssrn.199903

Franc J. G. M. Klaassen (Contact Author)

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM) ( email )

Roetersstraat 11
Amsterdam
Netherlands
+31 20 525 4191 (Phone)
+31 20 525 4254 (Fax)

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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