Exchange rate volatility and exports: a panel data analysis

Exchange rate volatility and exports: a panel data analysis Purpose– The purpose of this paper is to empirically investigate the role of real effective exchange rate (REER) volatility on export volume and also to address the impact of the international financial crisis of 2008. Design/methodology/approach– The empirical methodology is based on System GMM estimation for a set of 106 countries for the period of 2000-2011. Findings– For the complete sample of countries and for a set of developing/emerging economies, there is evidence that an increase (decrease) in REER volatility reduces (increases) export volume. The results are not robust once the oil export countries are removed from the sample. The estimated coefficients for the financial crisis dummy are positive and statistically significant, indicating that export volume were 0.14 percent higher after the financial crisis of 2008 compared to the previous period (2000-2007). There is also evidence that the export volume is price (REER) and income (trade weighted) inelastic. Research limitations/implications– The empirical results are valid for the complete set of countries and for developing and emerging economies when including the oil export countries, suggesting that countries should reduce exchange rate volatility in order to foster their export volume and that oil export countries have an important role on these results. Practical implications– The paper suggests that policymakers should adopt different policies to minimize exchange rate volatility if they seek to increase export volume. The international financial crisis had a significant impact on export volume in all estimated models regardless of the set of countries used. Originality/value– One of the main novelties of this work is that it deals with possible endogeneity using GMM estimators and addresses the issue of instrument proliferation, which is not a common feature of previous empirical studies on exchange rate volatility and trade flows. Another original aspect of the research is the construction of trade weighted variables for foreign income and REER based on the major 20 export partners for each country used in the panel data estimation. The work also incorporates the years following the international financial crisis of 2008, which is an additional empirical novelty, in order to address the impact of the international financial crisis on the export volume. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Economic Studies Emerald Publishing

Exchange rate volatility and exports: a panel data analysis

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0144-3585
DOI
10.1108/JES-05-2014-0083
Publisher site
See Article on Publisher Site

Abstract

Purpose– The purpose of this paper is to empirically investigate the role of real effective exchange rate (REER) volatility on export volume and also to address the impact of the international financial crisis of 2008. Design/methodology/approach– The empirical methodology is based on System GMM estimation for a set of 106 countries for the period of 2000-2011. Findings– For the complete sample of countries and for a set of developing/emerging economies, there is evidence that an increase (decrease) in REER volatility reduces (increases) export volume. The results are not robust once the oil export countries are removed from the sample. The estimated coefficients for the financial crisis dummy are positive and statistically significant, indicating that export volume were 0.14 percent higher after the financial crisis of 2008 compared to the previous period (2000-2007). There is also evidence that the export volume is price (REER) and income (trade weighted) inelastic. Research limitations/implications– The empirical results are valid for the complete set of countries and for developing and emerging economies when including the oil export countries, suggesting that countries should reduce exchange rate volatility in order to foster their export volume and that oil export countries have an important role on these results. Practical implications– The paper suggests that policymakers should adopt different policies to minimize exchange rate volatility if they seek to increase export volume. The international financial crisis had a significant impact on export volume in all estimated models regardless of the set of countries used. Originality/value– One of the main novelties of this work is that it deals with possible endogeneity using GMM estimators and addresses the issue of instrument proliferation, which is not a common feature of previous empirical studies on exchange rate volatility and trade flows. Another original aspect of the research is the construction of trade weighted variables for foreign income and REER based on the major 20 export partners for each country used in the panel data estimation. The work also incorporates the years following the international financial crisis of 2008, which is an additional empirical novelty, in order to address the impact of the international financial crisis on the export volume.

Journal

Journal of Economic StudiesEmerald Publishing

Published: May 9, 2016

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