Exchange rate volatility and trade: An empirical investigation from cross-country comparison

Abstract

This paper investigates empirically the impact of exchange rate volatility on the trade flows of six countries over the quarterly period of 1980-2005. The impact of a volatility term on trade is examined by using an Engle-Granger residual-based cointegrating technique. The major results show that increases in the volatility of the real exchange rate, approximating exchange-rate uncertainty, exert a significant negative effect on trade for South Korea, Pakistan, Poland and South Africa and a positive effect for Turkey and Hungary in the long run.