The Effect of Exchange Rate Volatility on Trade in Durables

Review of International Economics, Jan. 12, 1998

Posted: 27 Feb 1998

See all articles by Jaewoo Lee

Jaewoo Lee

International Monetary Fund (IMF) - Research Department

Abstract

Because durable goods have the quality of an asset, risk-averse consumers want to pay a lower price for durable than for nondurable goods so that they are compensated for the risk of price changes; they require risk premium. Since the exchange rate is a strong source of uncertainty in import prices, exchange rate volatility has a negative effect on the demand for imported durables. In an imperfectly competitive market, the volatility of the exchange rate is predicted to reduce the relative price of imported durables. The prediction is supported by an empirical investigation of the U.S. imports.

JEL Classification: E21, F12, F31

Suggested Citation

Lee, Jaewoo, The Effect of Exchange Rate Volatility on Trade in Durables. Review of International Economics, Jan. 12, 1998. Available at SSRN: https://ssrn.com/abstract=62799

Jaewoo Lee (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-7331 (Phone)
202-623-6334 (Fax)

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