Effects Of Exchange Rate Variability Research Articles

Exchange rate variability and the level of international trade

Theoretical research has shown that under reasonable assumptions exchange rate variability ought to depress the level of trade. This paper builds a theoretical model designed to exaggerate the negative effect of exchange rate variability on trade in order to calibrate an upper bound to the potential size of this effect. Numerical analysis demonstrates that exchange rate variability of the magnitude currently observed among industrial countries has an insignificant effect on the level of trade. This result is robust with respect to a wide range of parameter values and with respect to reasonable extensions of the model.

The impact of exchange rate variability on trade flows: Further results on sectoral U.S. imports from Canada

In this study, we provide additional empirical evidence on the effects of exchange rate variability on trade flows. We focus on trade between Canada and the United States in five sectors with substantial shares of bilateral trade between the two countries. Beside our sectoral approach, our contribution is to address econometric problems raised by the use of proxies for risk using the non-parametric approach suggested by Pagan and Ullah (1988). We adopt risk measures based on three-month forecast errors on the forward market. Our results generally indicate that exchange rate variability has not significantly depressed the volume of trade between Canada and the United States during the present floating rate period.

Effects of exchange rate variability on inflation variability

Previous studies have postulated that there exists a positive relationship between the rate of inflation and its variability. They have shown that a high inflation rate contributes to inflation variability. In this paper, we argue that with the current floating exchange rate system, exchange rate variability is another factor contributing to inflation variability. After incorporating a measure of exchange rate variability into a simple model used by previous authors, we estimate our model using cross-country data from 20 developed and 76 less developed countries. The cross-sectional regression results support our conjecture.

Exchange rate variability and trade: why is it so difficult to find any empirical relationship?

This paper discusses why previous literature has found little evidence of any effect of exchange rate variability on international trade. Methodological and statistical issues are discussed. In particular, comparisons are made of estimations based on different specifications or using different data sets and changes in the results depending on the method used are shown.

The effect of exchange rate variability on trade: The case of the West African Monetary Union's imports

The West African Monetary Union, during the period of this study, 1976–1982, comprised six countries — Benin, Burkina Faso, Coˆte d'Ivoire, Niger, Senegal, and Togo. Since their common currency, the CFA franc, has been pegged to the French franc at an unchanged rate since 1948, the entire nominal exchange rate variability that traders in the region face is due to movements in the French franc with respect to other currencies. In the face of exchange rate risk that is not always coverable, trade should be adversely affected. Using three measures of variability in the nominal effective exchange rate index, this paper finds that exchange rate variability has not affected the Union's real imports, or the diversification of trade away from the franc zone.

MICROECONOMIC IMPLICATIONS OF EXCHANGE RATE VARIATIONS

This paper investigates the effect of exchange rate variations on the equilibrium of an industry in which domestic firms are competing with foreign suppliers. The paper is designed as an expository survey. It discusses the perfectly competitive industry; exchange rate pass through under imperfect competition; entry, exit and hysteresis with fixed costs and exchange rate uncertainty. Copyright 1990 by Oxford University Press.

Exchange rate variability and asset trade

In discussions about different international monetary arrangements it is often maintained that exchange rate variability has a negative influence on international trade and foreign investment. This paper addresses one specific aspect of this general issue, namely the effect of exchange rate variability on capital flows and international portfolio diversification. More precisely, we examine how different monetary policies - and among those, policies that aim at stabilizing exchange rates - determine the risk characteristics of nominal assets, and how these risk characteristics determine international portfolio composition and trade in assets, when international asset markets are incomplete.

Exchange Rate Variability and the Level of International Trade

There have been numerous theoretical and empirical studies of the effect of exchange rate variability on the level of international trade. Most theoretical studies have concluded that under reasonable assumptions exchange rate variability ought to depress the level of trade. Empirical studies generally have not identified a significant effect of exchange rate variability on trade flows. This paper builds a theoretical model in which exchange rate variability has a negative effect on the level of trade. The model is calibrated to observed trade flows and real exchange rates. Simulation of the model demonstrates that the effect of increasing exchange rate variability on trade flows is very small. These results are not sensitive to a wide range of parameter values. Moreover, reasonable extensions of the model only serve to minimize further the effect of exchange rate variability on trade flows.

Exchange Rate Variability and the Slowdown in Growth of International Trade

The growth rate of international trade among industrial countries has declined by more than half since the inception of floating exchange rates. To explain the slowdown, the effects of exchange rate volatility are separated from those of other shocks since 1973--in particular, changes in oil prices and in trade regimes. The paper focuses on the effects of exchange rate variability with lags longer than a few months or quarters.

Bilateral Trade Flows, the Linder Hypothesis, and Exchange Risk

Bilateral trade flows are used to examine the Linder hypothesis and the effect of exchange-rate variability in a gra vity-type trade model derived from an underlying demand and supply mo del. A behavioral model is used to justify examining these issues joi ntly. The model performs well empirically using a sample of seventeen countries for the period 1974-82. The authors find overwhelming supp ort for the Linder hypothesis and this version of the gravity model. Moreover, they find strong support for the hypothesis that increased exchange-rate variability affects bilateral trade flows. Copyright 1987 by MIT Press.

Exchange Rate Variability and the Slowdown in Growth of International Trade

In this paper we attempt to answer the question of why the growth rate of international trade among the industrial countries declined by more than half since the inception of floating exchange rates. In trying to answer this question we separate the effects of exchange rate volatility from other shocks which occurred since 1973, in particular changes in oil prices and changes in the trade regimes. In addition, contrary to most existing papers, we concentrate on the effects of exchange rate variability which occur with lags longer than a few months or quarters.

The Effects of Exchange-Rate Variability on Output and Employment

This paper is a theoretical analysis of the effects of exchange rate variability on a firm's employment and output decisions. In section 1, two contracting models are developed and the static effects are explored. In the Gray-Fischer-Conzoneri model, only exchange rate presidation errors have effects where as in the Mussa-Taylor model anticipated exchange rate movements also have effects. In section 2, the same contracting models are used to describe the dynamic effects. The time series properties of employment and output depend upon the time series properties of the exchange rate, the cost of the adjusting factor inputs, and the form of the labor contract. Also, exchange rate volatility can be profitably exploited by an individual firm that can adjust its output to price changes each period. In section 3, the implications of risk aversion are examined. Given an increase in exchange rate variability, a risk-averse firm will reduve its scale of operations if adjustment costs prohibit its responding to realizations of the exchange rate. However, if the firm is able to adjust it labor input in response to exchange rate movements, then it may well want to increase its scale of operations Aversion to the increased risk has to be weighed against the expected profitability of being able to exploit wider fluctuations in exchange rate.

The short run efficacy of monetary policy under floating exchange rates reconsidered

This paper disputes the argument that the short-run effectiveness of monetary policy in stabilizing domestic output under floating rates is necessarily reduced if elasticities of demand for imports and exports with respect to the current exchange rate are low and capital flows depend on the exchange rate. It is shown that the relative efficacy of monetary changes is determined by the interest rate elasticity of international interest payments and receipts and the effect of exchange rate variations on the demand for money in addition to the exchange rate elasticities of trade and capital flows.

International economic equilibrium and foreign exchange rates

The article takes up a decisively critical position with regard to monetary devaluations as a remedy for the disequilibrium of international payment accounts. The author makes a theoretical examination of the effects of exchange rate variations under a fully planned economy, in a socialist economy based on price mechanism, in a free or quasi-free economy, and under a mixed system; and in support of his thesis he discusses the practical results obtained, comparing the variations of exchange rates in Great Britain and France during the inter-war period. In his opinion, the favour still enjoyed by the system of currency devaluations - “undoubtedly a tempting method for the government” - is partly due to tenacious delusions still surviving on spontaneous automatism, and partly to vested interests that find in devaluation profit opportunities.