Asymmetric effects of exchange rate volatility on trade flows: evidence from G7

Current trend in applied research points at application of Shin et al.’s (2014) nonlinear ARDL approach to asymmetric error-correction modeling and asymmetric cointegration. Two studies in the literature have applied these approaches to assess the short-run and long-run asymmetric effects of exchang...

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Bibliographic Details
Published in:Journal of economics and finance 2023-03, Vol.47 (1), p.38-62
Main Authors: Bahmani-Oskooee, Mohsen, Karamelikli, Huseyin, Niroomand, Farhang
Format: Article
Language:English
Subjects:
Economic activity
Economics
Economics and Finance
Estimates
Exports
Finance
Foreign exchange rates
Industrialized nations
International trade
Macroeconomics/Monetary Economics//Financial Economics
Variables
Volatility
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Summary:Current trend in applied research points at application of Shin et al.’s (2014) nonlinear ARDL approach to asymmetric error-correction modeling and asymmetric cointegration. Two studies in the literature have applied these approaches to assess the short-run and long-run asymmetric effects of exchange rate volatility on aggregate exports and imports of Asian and African countries, respectively. We add to this new literature by considering the experiences of G7 countries. We find that trade flows of almost all countries are affected by volatility asymmetrically in the short run. In the long run, while French and Italian exports are boosted by increased volatility, German exports are hurt. On the other hand, decreased volatility reduces French and Italian exports. As for G7 imports, increased exchange rate volatility hurts imports of Canada, Germany, France, Italy, and the U.K. in the long run and decreased volatility boosts their imports.
ISSN:1055-0925
1938-9744
DOI:10.1007/s12197-022-09597-5