This paper analyses the effect of exchange rate volatility on Germany-US bilateral trade flows for the period 1973:4–1992:9. ARCH models are used to generate a measure of exchange rate volatility and are then tested against Germany's exports to, and imports from, the US. This paper differs from many papers previously published as the effects of volatility are found to be positive and statistically significant for the period under review. The debate over the use of real or nominal exchange rate data in the derivation of volatility estimation is also addressed.
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