| Summary: | A study was conducted to investigate the impact of exchange-rate volatility on real exports. An export demand function was estimated on quarterly export data for each of seven countries—Denmark, Germany, Italy, Japan, Switzerland, the U.K., and the U.S.—over the floating exchange-rate period. Evidence strongly points to the presence of a single unit root in almost all variables at normal significance levels, a result consistent with the macroeconomic literature. Results suggest that a unique, statistically significant long-run relationship exists between real exports and exchange-rate volatility in each country. In addition, in most cases, exchange-rate volatility has a short-run effect on export volume. Results also indicate that the moving standard deviation of the growth rate of the exchange rate used in previous studies as a proxy for exchange-rate uncertainty does underestimate the effect of exchange-rate risk on trade flows. The most significant finding, however, is that exchange-rate volatility has a statistically significant negative impact on the real exports of all seven countries.
|
|---|