The Impact of Exchange Rate Volatility on Sectoral Exports: (1973–2004)

Abstract

This paper looks at the impact of exchange rate volatility on real sectoral exports for Austria, Denmark, France, Ireland, Italy, Greece, Portugal, U.K., Finland, Netherlands, and Sweden for 1973–2004. Since we have not been able to identify any aggregate effects in previous empirical work in this study we examine sectoral exports of leather and rubber using the standard deviation of the moving average of the log of real exchange rate as a measure of exchange rate volatility. Overall, our results suggest that exchange rate volatility has a mixed effect on sectoral exports for the EU countries. With the move from fixed to flexible exchange rates in Europe in 1973, there was increasing concern about effects of exchange rate variability on trade. Economic theory is ambiguous on the impacts of increased exchange rate variation as some models can predict negative or positive impacts depending on key parameters. Empirical work in this field was pioneered by Arize in various papers (Arize, 1995, North American Journal of Economics and Finance; Arize, 1996, International Review of Economics and Finance; Arize, 1999, The International Trade Journal; Arize, Osang And Slottje, 2000, Journal of Business and Economic Statistics). The body of literature favours the conclusion that the relationship is negative and statistically significant, although there are still significant positive as well as insignificant results. In any case, there is little, if not at all, examination of sectoral effects of exchange rate volatility to exports for samples containing EU countries. Having in the past examined aggregate effects on EU countries (Serenis, Cameron, Serenis, 2008 Atlantic Economic Journal; Serenis, 2006, PhD. thesis), our analysis will now turn to sectoral effects from volatility to export quantity since Atl Econ J (2010) 38:117–118 DOI 10.1007/s11293-009-9207-5