Exchange Rate Volatility and Trade Flows of the U.K. in 1990s

This paper examines the impact of exchange rate volatility on trade flows in the U.K. over the period 1990–2000. According to the conventional approach, exchange rate volatility clamps down trade volumes. This paper, however, identifies the existence of a positive relationship between exchange rate volatility and imports in the U.K. in the 1990s by using a bivariate GARCH-in-mean model. It highlights a possible emergence of a polarized version with conventional proposition that ERV works as an impediment factor on trade flows.

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Exchange Rate and Industry-Level Energy Import

Advances in Environmental Engineering and Green Technologies - Handbook of Research on Strategic Management for Current Energy Investments ◽

10.4018/978-1-7998-8335-7.ch005 ◽

2021 ◽

pp. 71-86

Author(s):

Abdul Sahib ◽

Sergey Prosekov

Keyword(s):

Exchange Rate ◽

Supply And Demand ◽

Exchange Rate Volatility ◽

Trade Flows ◽

Level Energy ◽

Rate System ◽

Domestic Prices ◽

Floating Exchange Rate ◽

Exchange Rate System ◽

The Impact

After the Bretton Woods exchange rate system in 1973, the free-floating exchange rate, the rate determined by the forces of supply and demand, began, which developed an interest in the area of many researchers to investigate, theoretically and empirically, the impact of exchange rate volatility on the world trade flows. There are two channels, direct and indirect, through which the change in exchange rate affects domestic prices. Under the direct channel, a fall in exchange rate leads to increase in imports as well as increases the prices of inputs in domestic currency. Secondly, under the indirect channel, a decline in the exchange rate triggers the availability of domestic goods to foreign buyers at a cheaper rate, and the demand for domestic products increased. Thus, the change in exchange rate affects trade flows either positively or negatively.

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Exchange Rate Volatility and Trade Flows: Evidence from China, Pakistan and India

International Journal of Economics and Finance ◽

10.5539/ijef.v7n11p121 ◽

2015 ◽

Vol 7 (11) ◽

pp. 121 ◽

Cited By ~ 2

Author(s):

Sarfaraz Ahmed Shaikh ◽

Ouyang Hongbing

Keyword(s):

Exchange Rate ◽

Exchange Rate Volatility ◽

Trade Flows ◽

Series Data ◽

General Level ◽

Negatively Associated ◽

Long Run ◽

Short Run ◽

The Exchange Rate ◽

The Impact

This study examines the impact of exchange rate fluctuations on trade flows in case of China, Pakistan and India by using the time series data from 1980 to 2013. Most of the researchers have advocated that exchange rate volatility is negatively associated with general level of trade. In this study we have used the standard deviation of the moving average of the logarithm of the exchange rate as a proxy for volatility. And to investigate this relationship, we have applied the Autoregressive Distributive Lag (ARDL) approach for co-integration which estimates the short and long run relationship among the variables for the said period. The results of this empirical work have suggested that exchange rate volatility is negatively associated with Chinese exports in short run while positively associated in long run. However, in the case of Pakistan and India both in the short run and long run, the exchange rate volatility is negatively associated with total volume of trade.

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