Abstract
ABSTRACT We assess the response of trade flows between Britain and Germany to exchange rate volatility. When we estimated a linear model, we found short-run effects of volatility in 36 British exporting industries that lasted into the long run only in 23 industries. The comparable number for German exporting industries were 42 and 17, respectively. However, when we estimated a nonlinear model, we found short-run asymmetric effects of volatility in 54 British exporting industries that lasted into the long run in 38 industries. The comparable number for German exporting industries were 64 and 42, respectively. Almost all affected industries were small.
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