TY - JOUR
T1 - Volatility in exchange rate components and the volume of international trade
AU - Tadesse, Bedassa
PY - 2009/4
Y1 - 2009/4
N2 - By decomposing the changes in the real exchange rate series into fundamental and transitory components (market microstructure and stochastic element) and modeling the volatility in each via a GARCH process, this paper examines how volatility in exchange rate affects the volume of aggregate and disaggregate US trade with Canada, Germany, and Hong Kong during the 1989-2002 period. The results indicate significantly different impacts of volatility due to the fundamental and transitory components of the exchange rate series on US bilateral trade. While the findings suggest heterogeneous responses of traders to volatilities arising from different components of the real exchange rate, the impact of the volatility due to the fundamental component is also found to vary across commodities, implying disparities in the inter- and intra-trading arrangements made by traders of different goods in counteracting foreign exchange risk arising from changes in the economic fundamentals.
AB - By decomposing the changes in the real exchange rate series into fundamental and transitory components (market microstructure and stochastic element) and modeling the volatility in each via a GARCH process, this paper examines how volatility in exchange rate affects the volume of aggregate and disaggregate US trade with Canada, Germany, and Hong Kong during the 1989-2002 period. The results indicate significantly different impacts of volatility due to the fundamental and transitory components of the exchange rate series on US bilateral trade. While the findings suggest heterogeneous responses of traders to volatilities arising from different components of the real exchange rate, the impact of the volatility due to the fundamental component is also found to vary across commodities, implying disparities in the inter- and intra-trading arrangements made by traders of different goods in counteracting foreign exchange risk arising from changes in the economic fundamentals.
UR - http://www.scopus.com/inward/record.url?scp=67651211744&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=67651211744&partnerID=8YFLogxK
U2 - 10.1080/08853900902779414
DO - 10.1080/08853900902779414
M3 - Article
AN - SCOPUS:67651211744
SN - 0885-3908
VL - 23
SP - 110
EP - 141
JO - International Trade Journal
JF - International Trade Journal
IS - 2
ER -