Exchange rate volatility and trade flows: evidence from the European Union
by Nikiforos T. Laopodis
Global Business and Economics Review (GBER), Vol. 1, No. 2, 1999

Abstract: The paper investigates the issue of whether exchange rate volatility has any significant adverse effects on the trade volume between several European Union countries and Germany over the 1979-1998 period. The measure for exchange rate volatility is obtained from an Exponentially Generalized Auto-Regressive Conditionally Heteroskedastic (EGARCH) model. The results indicated that short-run volatility did not have any deleterious effects on the volume of bilateral trade despite the former's noticeable increase or, at least, persistence for most of the exchange rates. Further, the findings suggested that Spain's and Portugal's participation in, and the exits of the United Kingdom and Italy from, the ERM have not exerted any (statistically) significant negative effects on the trade flows.

Online publication date: Mon, 07-Feb-2005

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