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.