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Exchange Rate Uncertainty and Trade
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Ching-Yi Lin
Published/Copyright:
April 23, 2012
This study offers an explanation of the common empirical finding in the literature that exchange rate uncertainty only slightly or insignificantly impacts export volume. When export volume is decomposed into the extensive and intensive margins, panel regressions presented in this study reveal that exchange rate uncertainty negatively affects the extensive margin and positively affects the intensive margin, with both effects being statistically significant. These two opposing effects cancel each other out when combined, producing an insignificant effect on overall export volume. This study goes on to develop an analytically tractable monetary model of heterogeneous firms and endogenous extensive and intensive margins, which predicts these empirical results.
Published Online: 2012-4-23
©2012 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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