Measures Of Exchange Rate Volatility Research Articles

Asymmetric effects of exchange rate volatility on trade flows in Nigeria

Purpose — This study assesses the symmetric and asymmetric effects of exchange rate volatility on trade flows in Nigeria.Method — The study employs quarterly data and covers the period 1995q1 to 2020q4. The data were sourced from International Financial Statistics (IFS) and Central Bank of Nigeria (CBN) websites. The paper applies both linear ARDL and non-linear ARDL (NARDL) models. These methods are employed to evaluate the symmetric and asymmetric effects of exchange rate volatility.Result — The results from linear ARDL model show that exchange rate volatility has only significant short-run effect on export while it has both short-run and long run effects on the imports. The findings from the non-linear ARDL suggest that exchange rate volatility has neither short run nor long run asymmetric effects on exports. However, the non-linear ARDL model reveals short run and long run asymmetric effects of exchange rate volatility on imports. The findings show that increase in volatility reduces imports while decrease in volatility boosts imports.Contribution — Previous studies have only investigated the symmetric effects of exchange rate volatility on trade balance in Nigeria. This study contributes to the literature by examining the symmetric and asymmetric effects of exchange rate volatility on trade flows, using the GARCH-based measure of exchange rate volatility.

Impact of Exchange Rate Volatility on Export in Nigeria: 2008 – 2021

This study examined the impact of exchange rate volatility on export in Nigeria. The specific objectives of the study were to evaluate the individual impacts of parallel market-, interbank, real and nominal-exchange rate volatilities on Nigeria’s export. The study employed the ARDL-Error Correction Model and Bound Test using secondary data sourced from the Statistics Database of the Central Bank of Nigeria. Bounds test results for each of the four models, showed long-run relationship among the variables. The results showed that in the long-run, all the exchange rate volatility measures showed negative sign as expected but only the real effective exchange rate volatility was statistically significant in the long run. In the short-run, the average impact of exchange rate volatility was negative in all the four models as expected. However, volatility in real effective exchange rate and nominal effective exchange rate were statistically significant. Finally, if the Nigeria’s export deviates from its long-run path due to short-run perturbations, the tendency for it to return to long-run equilibrium from the four models lied between 25% and 39%. Based on these results, this study recommended that efforts to improve Nigeria’s trade with other countries should consider stabilizing the Naira exchange rate. The Central Bank of Nigeria should shore up reserve accretion as well as diversify the country’s export basket and source for new export destinations.

Effects of Real Exchange Rate Volatility on Trade: Empirical Analysis of the United States Exports to BRICS

This paper analyzes the effects of real exchange rate volatility on the United States’ exports to BRICS. It focuses on the top 20 export products (defined by the 2-digit Harmonized System codes) from the United States to Brazil, Russia, India, China, and South Africa, and uses quarterly data for period from 1993Q1 to 2021Q2. The specified panel regression model was first estimated using three estimation methods, namely, the Panel Least Squares, the Panel Fully Modified Least Squares (FMOLS), and Panel Dynamic Least Squares (DOLS). In addition, to estimate the short-run and long-run effects of real exchange rate volatility on exports, it also uses the method of the Autoregressive Distributed Lag (ARDL) approach to cointegration analysis and error-correction models. Two measures of exchange rate volatility are used in this study. According to our findings, the levels of foreign economic activity have a positive effect on exports while the real exchange rate has a negative effect on exports. In addition, exchange rate volatility has a negative effect on exports in the long run in all five countries. However, the effects of exchange volatility are found to yield mixed results in the short run regardless of which measure of exchange rate volatility was used.

Structural attributes of firms, irreversibility, and uncertainty of corporate investment in Nigeria

In the Nigerian context, there is a gap in the literature on the structural attributes of firms and the extent to which corporate investments are irreversible. Thus, this study was to empirically examine the structural attributes of firms, irreversibility, and uncertainty of corporate investment using the real options theory of investment. The study is based on annual data series of firms listed on the Nigerian Stock Exchange from 2005 to 2019. The study measured structural attributes using competitiveness and monopoly/oligopoly of a firm, macroeconomic uncertainty, inflation, interest, and exchange rates, and examines their association with corporate investments. The study was conducted using a panel dataset adopting a fixed-effect estimation technique that takes into account potential endogeneity and firm specific-effects. The result showed that the macroeconomic uncertainty measure of exchange rate volatility is strongly detrimental to corporate investment decisions. Furthermore, interest rate and inflation volatilities are not detrimental to investment growth, while exchange rate uncertainty has a substantial negative influence on corporate investment. Besides, macroeconomic uncertainty was found to be a greater disincentive for firms with irreversible investments than for firms with more easily reversible investment projects.

The relationship between international trade and exchange rate variability: A review study

The paper was conducted to survey and review the effects of exchange rate volatility on trade performance. Since the last review articles by McKenzie and Bahmani-Oskooe and Hegerty, the literature has experienced a surge in the number of articles. Many of the recent studies have been empirical in nature and these deserve specific attention. There is often more than one measure of volatility applied in a study, and some new measures of exchange rate volatility are introduced. Although there are relatively new econometric models being applied in this research area, the determinants of trade performance in recent studies are simple. In addition, the number of studies using bilateral trade data levels has increased over time. Although a large number of studies are reviewed in this study, existing empirical evidence on the trade effects of exchange rate volatility is generally inconclusive. These new contributions set the stage for this review.

Uncertainty and exchange rate volatility: Evidence from Mexico

This paper analyzes the effect of different types of uncertainty by implementing an in-depth case study of Mexican peso US dollar exchange rate volatility. The paper exploits unique data from the Banco de México's Survey of Professional Forecasters to construct four distinct, direct knightian uncertainty measures, and two macro surprise measures. These measures, as well as text-based and financial data based measures common in the literature, are used to test for distinct uncertainty effects. Exchange rate volatility during 1999–2018 is regressed onto uncertainty measures capturing both domestic and international, economic and political uncertainty. The main results show higher knightian uncertainty leads to higher exchange rate volatility. While both domestic and international measures affect exchange rate volatility, international uncertainty measures based on text and financial data (the global EPU and the VIX) and our novel survey-based knightian measure of domestic political uncertainty dominate. The paper also presents evidence of an amplifying effect of domestic economic uncertainty on exchange rate volatility during recession periods. The results are robust to different exchange rate volatility measures and different specifications.

Autoregressive Distributed Lag (ARDL) analysis of U.S.-China commodity trade dynamics

This study examines the U.S.-China trade dynamics focusing on the leading commodity imports and exports in both manufacturing (SITC 5–8) and crude materials (SITC2) sectors at SITC 3-digit level. The effect of real income of China and the U.S., bilateral real exchange rates and its volatility, U.S. investment, the “third country” exchange risk effect, and the role of financial deepening and human capital investment are evaluated using 2000–2016 quarterly data. The Autoregressive Distributed Lag (ARDL) model results for the U.S. inpayments and outpayments indicate that real exchange rates play the most significant role, affecting most commodities in both the short-and long-run, with the expected signs. While the relationship of most U.S. commodity exports and imports with the real income of both China and the U.S. have the expected long-run positive effect, the average responsiveness of the U.S. imports to U.S. real income is larger than that of the U.S. exports’ response to Chinese real income. This, combined with the relatively larger exchange rate elasticity value for the U.S. exports, suggests a greater U.S.-China trade deficit following the real appreciation of the yuan, which is consistent with the actual post-2005 trade experience. Both the real exchange rate volatility measures and the U.S. foreign direct investment in China are found to have a limited significant relationship with both U.S. commodity imports and exports. Although financial deepening and education affect trade in both directions, the positive influence of human capital is consistent and evident across most affected commodity cases.

The Effects of Exchange Rate Volatility on Exports in COMESA: A Panel Gravity Model Approach

In the recent past, exchange rate volatility has become a matter of concern for developing and emerging economies partly due to monetary policy actions of advanced economies and partly due to domestic policy actions. This study examines the effects of exchange rate volatility on exports, using a panel gravity model covering the period 1997 to 2019, to estimate pooled, fixed and random effects models for a panel of 19 COMESA member countries. Applying two alternative measures of exchange rate volatility, empirical results reveal that exchange rate volatility tends to depress both intra and extra-COMESA trade. The results suggest that policy makers in COMESA should not ignore exchange rate volatility when designing trade policies and strategies in member countries. Monetary authorities should strive to stabilize exchange rates by addressing the underlying causes of large, unpredictable and damaging exchange rate fluctuations while cautiously avoiding either further destabilizing the exchange rate or depleting foreign reserve buffers that could result in vulnerability to external shocks. It is also important to develop regional infrastructure like roads, railways and ports to further integrate the region and hence unlock the trade potential for COMESA region.

Exchange rate volatility in the eurozone

Abstract The current economic crisis has witnessed a strong deceleration in the growth of international trade. This has been even greater in the cases of the European Unionand the eurozone, where the rates of export growth have even reached negative figures. In this paper, the authors examine to which extent exchange rate volatility might account for the drop in the rate of growth of exports in the eurozone since the start of the crisis. To that end, they estimate export functions, augmented to include several measures of exchange rate volatility, for the four largest economies of the eurozone, i.e., France, Germany, Italy and Spain, for the period 1994:1–2014:4. In the empirical application, the authors make use of two alternative measures for exchange rate volatility, i.e., (i) the Standard deviation and (ii) the conditional variance from the GARCH methodology, of the change in the logarithm of the exchange rate, for both nominal and real exchange rates, and in the latter case computed using as deflators both Export prices and unit labour costs. The empirical results show no clear-cut evidence on the impact of exchange rate volatility on the exports of the countries analysed, suggesting that financial markets were developed enough so that exchange rate volatility does not hinder the evolution of exports.

Exchange rate volatility and Japan–U.S. commodity trade: An asymmetry analysis

AbstractExchange rate volatility is said to affect trade flows in either direction. When increased volatility is separated from decreased volatility, asymmetric analysis reveals even more support for the fact that both increased volatility and decreased volatility affect trade flows in either direction. We add to this new literature by considering 57 industries that trade between Japan and the US. In addition to providing evidence of asymmetric response of their trade flows to a measure of exchange rate volatility, our approach identifies industries that could benefit from increased exchange rate volatility and those that could be hurt. Similarly, we identify industries that could benefit from decreased volatility and those that could be hurt. The overall conclusion is the adverse effects of dollar–yen volatility on the trade between the two countries.

THE IMPACT OF EXCHANGE RATE VOLATILITY ON EXPORT FLOWS IN DEVELOPING COUNTRIES

This article investigates the long run impacts of exchange rate volatilities on export volumes in six developing countries, Turkey, Indonesia, Brazil, Mexico, Poland, and Chile. The exchange rate volatility is estimated by both ARCH/GARCH and moving sample standard deviation-based volatility proxies. Error correction representation of the long run export model reveals that there is not cointegration relationship for Brazil, Indonesia, and Chile while the results support the cointegration relationship for Turkey, Mexico, and Poland. Second, world income is major determinant driving export volumes in Turkey, Mexico, and Poland. Third, there is a significant negative relationship between exchange rate level and export volumes in Turkey and Mexico in line with theory. Finally, the measure of exchange rate volatility carries a significant negative coefficient in the case of Poland but a significant positive coefficient in the case of Turkey.

Effect of Exchange Rate Volatility on Sri Lanka's Inbound Tourist Flow

This paper investigates effects of exchange rate volatility on Sri Lanka's inbound tourism using monthly data on tourist arrivals, exchange rate and other related variables from 1990 to 2016. An Exponential Generalized Autoregressive Conditional Heteroscedasticity (EGARCH) model is used to generate a measure of exchange rate volatility. This is then incorporated in a tourism demand model to test its impact on tourist flows into the country. The empirical methodology depends on the theory of cointegration and error correction representation. The results reveal that there are significant negative short run and long run effects of exchange rate volatility on tourist flows to Sri Lanka. Further, it suggests that the Sri Lankan tourism product is a luxury good, having high income elasticity. In addition, tourism related inflation has a significant negative impact on the growth in tourist arrivals in the short run. However, in the long run, a reduction in price sensitivity is observed. Moreover, results highlight the significant positive impact of habit persistence or/and word of mouth recommendation in increasing tourist flows to Sri Lanka. It further reveals the importance of maintaining a conducive economic, political and social environment to increase the demand for Sri Lankan tourism.

Examining the nexus between exchange rate volatility and export performance: Empirical evidence from the Egyptian experience

This paper investigates the relationship between exchange rate volatility and export performance of the Egyptian economy for the period (1980-2016). Moving average standard deviation and conditional standard deviation from GARCH model are used to generate two different measures of exchange rate volatility. The co-integration results indicate the existence of a unique long-run relationship between the real value of non-petroleum exports (as well as the volume of total exports) and the GARCH measure of exchange rate volatility. Using a Vector Error Correction Model, it is found that the volatility of the real effective exchange rate has a significant negative effect on real exports, whereas the effect of the level of real effective exchange rate itself, is not found to be statistically significant. Relevant policy implications are derived from these results.

Real exchange rate volatility and domestic consumption in Ghana

PurposeThis paper aims to examine the effects of exchange rate volatility on consumption by focusing on a small open sub-Saharan Africa (SSA) country, Ghana, which has experienced exchange rate volatility frequently.Design/methodology/approachThe authors used annual data covering the period 1980-2015, the annualised variance of the real exchange rate as a measure of exchange rate volatility and a technique that is able to separate short-run effects from long-run effects.FindingsThe authors found that exchange rate volatility has negative effects on domestic consumption in the short run, which is passed on as negative long-run effects. This conclusion is unaffected by an alternative measure of exchange rate volatility and the choice of lag restrictions.Research limitations/implicationsThe authors’ finding suggests that policymakers should seek to reduce or prevent exchange rate volatility by pursuing various policies including limiting foreign currency transactions within the country and promoting quality exports.Originality/valueThe extant studies have examined the effects of exchange rate volatility on consumption by considering countries in regions other than SSA. This paper focuses on a small open SSA country which has experienced exchange rate volatility frequently. Unlike most studies, this paper differentiates short-run effects from long-run effects.

Exchange rate uncertainty and private investment in BRICS economies

Macroeconomic uncertainty is a major challenge facing policymakers. Exchange rate is usually associated with high level of volatility in developing economies. This has potential effect on other economic variables such as investment. This paper empirically examines the impact of exchange rate uncertainty on private investment in the BRICS bloc. Using cross-country time series data from World Development Indicators, for 1997–2015, we built an ARCH-based measure of exchange rate volatility to proxy uncertainty. The results show that uncertainty resulting from exchange rate volatility has a negative effect on private investment in both random and fixed effects as well as GMM estimations. Therefore, policy may focus on stabilizing domestic currencies in BRICS countries.

EXCHANGE RATE VOLATILITY AND ITS IMPACT ON COMMODITY TRADE FLOWS BETWEEN SINGAPORE AND MALAYSIA

(ProQuest: ... denotes formulae omitted.)1.INTRODUCTIONIntroduction of floating exchange rate regime in early seventies has presented exchange rate uncertainty to traders and possibility of negative effects on trade between nations. However, theoretical developments have produced models that predict the effects of exchange rate volatility on trade could also be positive if traders maximize trade today in order to cover part of future loss due to exchange rate uncertainty. Regardless of the outcome, each nation follows its own recourse to meet this challenge. For example, countries may adopt floating exchange rate, pegged rate, managed rate, etc. Exchange rate regimes in both Singapore and Malaysia are fairly similar. Monetary Authority of Singapore (central bank) adopts a managed float regime which allows the Singapore dollar to fluctuate within a band. Similarly, Bank Negara Malaysia (Malaysia's central bank) implements comparable policy. Although both exchange rates float within bands, still the real exchange rate between Singapore dollar and Malaysian ringgit could experience volatility outside a given band due to differential inflation rate in Singapore and Malaysia. Figure 1 highlights the degree of volatility of the real exchange rate between Singapore dollar and Malaysian ringgit.Has this volatility affected trade volume between Singapore and Malaysia? In trying to answer such questions we usually rely upon predictions from past models and estimates. In trying to learn past studies we come across the most recent review articles by McKenzie (1999) and recently by Bahmani-Oskooee and Hegerty (2007) who provide a detail theoretical and empirical review of the impact of exchange rate volatility on trade flows. From these review articles we gather that a few studies have included Singapore in their list of countries. Bahmani-Oskooee and Payesteh (1993) used standard Ordinary Least Square method to investigate long-run effects of exchange rate volatility on import and export volumes of six countries: Greece, Korea, Pakistan, the Philippines, Singapore and South Africa. In the results for Singapore they find no significant effects. Suspecting that the results could suffer from spurious regression problem, they then relied upon Engle and Granger (1987) cointegration method and showed that indeed the variables are not cointegrated. Since Engle and Granger (1987) method does not allow feedback effects among variables, Bahmani-Oskooee (1996) adopted Johansen's cointegration technique which allows feedback effects among variables of a given model. In the case of Singapore, although he finds cointegration among the variables of both import and export demand models, measure of exchange rate volatility carries an insignificant coefficient in the import demand model but significantly positive coefficient in one vector and negative coefficients in two vectors. The negative effects is also confirmed by Poon, et al. (2005) who used, again, the Johansen's method but only export volume of Singapore in addition to exports of Indonesia, Japan, South Korea, and Thailand.The mixed findings by the above studies do suffer from aggregation bias in that they have used trade flows of Singapore with the rest of the world. To reduce the bias another set of studies assess the impact of bilateral exchange rate volatility on bilateral trade flows between two countries. Unfortunately, no study has included Singapore as a trading partner.1 In this paper we try to assess the impact of exchange rate volatility on the trade flows between Singapore and her major trading partner Malaysia. However, following the recent trend we disaggregate the bilateral trade flows between the two countries by commodity and investigate the short-run and long-run effects of real exchange rate volatility on 22 industries in Singapore that import from Malaysia and 26 industries that export to Malaysia.2 These industries in each group conduct more than 84% of the trade. …

De Facto Exchange Rate Regime Classifications: An Evaluation

There exist several statistically-based exchange rate regime classifications that disagree with one another to a disappointing degree. To what extent is this a matter of the quality of the design of these schemes, and to what extent does it reflect the need to supplement statistics with other information (as is done in the IMF’s de facto classification)? It is shown that statistical methods are good at the basics (distinguishing some type of peg from some type of float), but less helpful in other respects, such as determining whether a float is managed, particularly for countries that are not very remote from their main trading partners. Different measures of exchange rate volatility have been used but are not primarily responsible for differences between classifications. The theoretical underpinning of particular classification schemes needs to be more explicit.

Exchange rate volatility and manufacturing trade: Evidence from Africa

Subsequent to the floating of the US dollar in 1973, liberalization of capital flows and the associated exponential growth of cross-border financial transactions during the last three decades, important volatility and uncertainty has been seen in exchange rates (Arize, 1998). Academicians, policy makers, researchers and economists have always raised eyebrows with regards to the potential impact of exchange rate volatility on trade. Taking into account the foregoing, recent volatility in world known currencies and given that African countries rely heavily on manufacturing trade for their survival, this paper analyses the impact of exchange rate volatility on manufacturing trade in a sample of 18i African countries spanning the period 1995-2012 using an import-export model and dynamic panel data econometrics. As measures of exchange rate volatility, the Z score and EGARCH as employed. In a dynamic setting, contrary to what static results suggest, random coefficient estimates reveal that both REER and its volatility are statistically significant in explaining real manufacturing imports and exports using both measures of exchange rate volatility. However, foreign income, contrary to the law of income elasticity of demand is inelastic in explaining the exports. When VaR estimation is employed, however, only when EGARCH is employed, does exchange rate volatility adversely affect real manufacturing imports and exports. The negative impact of exchange rate volatility on manufacturing exports means that the governments of the African states should look for policies to stabilize their external trade position. As the results, the African economies should seek the help of developed and emerging nations in developing their financial markets, more explicitly well-developed hedging instruments and markets. In the same vein, governments should come up with the necessary policies to promote the introduction of institutions to provide such services. The results of the study also have important insights to offer in terms of government macroeconomic policies to stabilise external trade in the African countries such as diversification of markets and payment alternatives and on a regional scene to start thinking about a regional currency pegged to a major world currency.

GARCH-based versus traditional measures of exchange-rate volatility: evidence from Korean industry trade

Because economic theory suggests that the effects of exchange-rate volatility on trade flows are not uniformly negative, it is necessary to test them empirically. This literature has grown in recent years to cover numerous country pairs and individual products, proving that these effects are indeed ambiguous. Yet, this has raised another important issue: properly measuring exchange-rate volatility. Previous research used annual data and standard deviation-based measure of exchange-rate volatility. In this paper, we use quarterly data and a GARCH-based measure of volatility to assess sensitivity of trade flows of 70 industries that trade between the USA and Korea. Comparing our findings in this paper to those of previous research, we discover that, indeed, the results are sensitive to different measures of exchange-rate volatility.

An Empirical Sector-Specific Gravity Model for Hungarian International Trade

This paper contributes to the economic literature on the impact of exchange rate volatility on Hungary’s foreign trade. Basic gravity model shows that trade volume between a pair of countries is an increasing function of their sizes (GDP) and a decreasing function of the distance between them. Additional factors included in extended model are population, dummy for common border and proxy for exchange rate volatility. The measure of exchange rate volatility is estimated by GARCH model. This paper explores relationship between trade and exchange rate uncertainty using quarterly data over the period 1999:1 – 2014:3. In order to obtain the objective result, we use the panel data regression for 10 sectors of Hungarian international trade based on SITC classification and six major trading partners (Austria, Germany, France, United Kingdom, Italy and Poland). The significant parameters obtained from panel regression demonstrate that bilateral exchange rate volatility leads to a decrease in Hungary’s foreign trade.