A New Look at the Trade Volume Effects of Real Exchange Rate Risk: A Rational Expectation-Based Multivariate Garch-M Approach
Cornell University Applied Economics Management Working Paper No. 2002-41
24 Pages Posted: 16 Sep 2003
Date Written: November 2002
Abstract
This paper takes a new empirical look at the longstanding question of the effect of exchange rate volatility on international trade flows by studying the case of Taiwan's exports to the United States from 1989-1998. In particular, we employ sectoral level, monthly data and an innovative rational expectation-based multivariate GARCH-M estimator with corrections for leptokurtic errors that is consistent with the core hypothesis that traders' forward contracting behavior might be affected by exchange rate risk. We find that real exchange rate risk has insignificant effects in most sectors, although agricultural trade volumes appear highly responsive to real exchange rate volatility. These results differ significantly from those obtained using more conventional and restrictive modeling assumptions.
Keywords: Exchange Rate, Trade, Multivariate GARCH
JEL Classification: C16, C32, F10
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Distinguishing between Equilibrium and Integration in Markets Analysis
-
Distinguishing between Equilibrium and Integration in Markets Analysis
-
Distinguishing between Equilibrium and Integration in Markets Analysis
-
Spatial Integration at Multiple Scales: Rice Markets in Madagascar
By Christine M. Moser, Christopher B. Barrett, ...
-
By Eric M. Overby and Jonathan Clarke
-
Spatial Pricing Efficiency in Fiji's Municipal Food Markets
By Hristos Doucouliagos, Phillip Hone, ...
-
Spatial Price Adjustment with and Without Trade
By Emma C. Stephens, Ed Mabaya, ...
-
Rainfall Shocks, Markets, and Food Crises: Evidence from the Sahel