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Kai-Li Wang and Christopher B.
Barrett 2007 This paper takes a new empirical look
at the longstanding question of the effect of exchange rate volatility on
international trade flows by studying the case of Taiwan’s exports to the
United States from 1989-1999. In particular, we employ sectoral level, monthly
data and an innovative multivariate GARCH-M estimator with corrections for
leptokurtic errors.  This estimator
allows for the possibility that traders’ forward-looking contracting behavior
might condition the way in which exchange rate movement and associated risk
affect trade volumes. We find change in importing country industrial production
and change in the expected exchange rate jointly drive the trade volumes. More
strikingly, monthly exchange rate volatility affects agricultural trade flows,
but not trade in other sectors. These results differ significantly from those
obtained using more conventional and restrictive modeling assumptions. 

paper explored the impact of the conditional mean and conditional variance of
real exchange rates on Taiwan’s exports by estimating an innovative rational
expectations-based multivariate GARCH-M model using sector- and
destination-specific monthly data. By using more disaggregated data and
attending to a variety of econometric issues that bedevil much of the extant
literature on this high profile issue, we offer a new look at this longstanding
question.  Our approach and results
underscore the importance of the choices of how to represent exchange rate
risk, of the data frequency one employs in analysis, and of specification
choice to correspond with the process by which one hypothesizes traders form
expectations about variables that remain uncertain at the moment of contract
execution. We find considerable variation among sectors. Our estimates
consistently indicate the change in expected exchange rate as well as change in
industrial production jointly drive trade volumes. Further, while exchange rate
and industrial production levels matter to trade volumes in long-run
equilibrium, high frequency change in those variables have the strongest
short-term effects and traders appear to respond more quickly to changes in
expected exchange rates than to changes in U.S. industrial production.  Our most striking finding is that
agricultural trade flows are quite significantly negatively affected by high
frequency exchange rate volatility that does not seem to impact other sectors
significantly. Agriculture appears far more responsive to both expected
exchange rates and to expected volatility in the exchange rate, and less
responsive to importer incomes, than do other sectors in Taiwan’s economy. Even
in the agricultural sector, however, our results show that failure to attend to
issues of non- normality in the regression residuals seems to lead to
substantial overstatement of the negative effect of exchange rate risk on trade
flows and that the effects of expected exchange rate levels on export volumes
are a complex mix of negative and positive effects over months.  These results underscore the importance of
both continued further disaggregated exploration of this longstanding question
and of the need for more careful theoretical and empirical work on the processes
by which farmers and agribusinesses form expectations over the profitability of
production and trade decisions, the timing of such decisions, and what these
processes mean for the design and implementation of policies to help stimulate
international agricultural trade.  As we
point out, agriculture differs in fundamental ways from other export sectors in
Taiwan; it is based on very small firms that depend heavily on imported
intermediate inputs and that frequently suffer liquidity constraints in a
highly competitive, low-margin industry that receives relatively little support
from government.  Intuitively, these
features of Taiwan’s agricultural economy may account for the anomalous –
relative to other sectors – effect of exchange rate volatility on agricultural
export volumes.  

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Norimah Ramli and Jan. M.
Podivinsky 2011 The paper investigates empirically the
impact of bilateral exchange rate volatility on the export flow of five
regional ASEAN countries, namely Malaysia, Singapore, the Philippines, Indonesia
and Thailand, to the United States, over the period January, 1990 to December,
2010. Estimates of the cointegration relations are obtained using methods
proposed by Johansen and Juselius (1990). Furthermore, the short-run and
long-run dynamic relationships between the variables are obtained for each
country utilizing error correction modelling. In general, the real bilateral
exchange rate volatility has a significant impact on exports at least for all
the countries considered in our sample, and the impact overall is negative
except for Indonesia.  

paper offers some new results for the exchange rate volatility from ASEAN
countries to the United States over the monthly period from January, 1990 to
December, 2010. In order to capture for the short and long run relationship
between the variables under estimation, this study performed the Johansen
Juselius (1990) tests and error correction model in order to capture for the
short- and long-run relationship between the variables in the systems. In general,
the real bilateral exchange rate volatility has a significant impact on exports
at least for all the countries considered in our sample, and the impact overall
is negative except for Indonesia.   

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