Abstract
Commodity exports depend on global demand and prices, but the increasing volatility of real exchange rates (RER) introduces an additional factor. Thus, this paper studies the RER volatility dynamics, estimated through GARCH and IGARCH models for Brazil, Chile, New Zealand, and Uruguay from 1990 to 2013. We study the impact of RER volatility on total exports using Johansen?s methodology, including proxies for global demand and international prices. The results suggest that exports depend positively on global demand and international prices for all countries; however, conditional RER volatility resulted significant and negative only for Uruguay, in the short- and long-run.
Highlights
The adoption of floating exchange rate regimes since 1973 has increased the importance of the studies associated with exchange rate volatility influence on international trade, both nominal and real exchange rate
In order to analyze the real exchange rates (RER) impact and its volatility on exports, we estimated cointegration models for each country exports measured in constant dollars (deflated by the United States (US) consumer price inflation (CPI)), the overall RER with the major trading partners in each country, its volatility estimated through a generalized autoregressive conditional heteroskedasticity (GARCH) model and world demand, estimated by global imports measured in constant dollars
In the case of Chile, after analyzing the series stationarity included in the model (Tables 1 and 2), all variables were not stationary, so we investigated the existence of co-integration between variables and estimated a co-integration vector, where volatility was not significant and the real exchange rate was significant, but with negative sign
Summary
One of the most relevant features of all selected countries is the large share of exports to China at the end of the period, despite during the first years, sales to this. In the case of Uruguay, in addition to the high participation of China in its exports, the share loss of sales to its big neighbors (Argentina and Brazil) is highlighted. According to the classification used by the World Bank as the main type of products exported in 2013, the case of Uruguay are mainly concentrated in the category of “vegetable” (soybeans and cereals) and “animal” (beef and dairy), representing about 65% of total exports.
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