nonlinear effects of exchange rate volatility on the volume of bilateral exports in this paper we investigate empirically the impact of exchange rate volatility on real international trade flows utilizing a 13 country data set of monthly bilateral real exports for 1980 1998 we compute one month ahead exchange rate volatility from the intra monthly variations in the exchange rate to better quantify this latent variable we find that the effect of exchange rate volatility on trade flows is nonlinear depending on its interaction with the importing country s volatility of economic activity and that it varies considerably over the set of country pairs considered copyright 2003 john wiley sons ltd

volatility and irish exports we analyse the impact of volatility per se on real exports for a small open economy concentrating on irish trade with the uk and the us an important element is that we take account of the time lag between the trade decision and the actual trade or payments taking place by using a flexible lag approach rather than adopt a single measure of risk we also adopt a spectrum of risk measures and detail varied size characteristics and statistical properties we find that the ambiguous results found to date may be due to not taking account of the timing effect which varies substantially depending on which volatility measure is used

on the sensitivity of the volume and volatility of bilateral trade flows to exchange rate uncertainty we present an empirical investigation of the hypotheses that exchange rate uncertainty may have an impact on both the volume and variability of trade flows by considering a broad set of industrial countries bilateral real trade flows over the period 1980 1998 similar to the findings of earlier theoretical and empirical research our first set of results shows that the impact of exchange rate uncertainty on trade flows is indeterminate our second set of results provides new and novel findings that exchange rate uncertainty has a consistent positive and significant effect on the volatility of bilateral trade flows helping us better understand macroeconomic volatility jel f17 f31 c22

exchange rate uncertainty and international portfolio flows a multivariate garch in mean approach abstract this paper examines the impact of exchange rate uncertainty on different components of net portfolio flows namely net equity and net bond flows as well as their dynamic linkages specifically a bivariate var garch bekk in mean model is estimated using bilateral monthly data for the us vis a vis australia canada the euro area japan sweden and the uk over the period 1988 01 2011 12 the results indicate that the effect of exchange rate uncertainty on net equity flows is negative in the euro area the uk and sweden and positive in australia the impact on net bond flows is also negative in all countries except canada where it is positive under the assumption of risk aversion the findings suggest that exchange rate uncertainty induces a home bias and causes investors to reduce their financial activities to maximise returns and minimise exposure to uncertainty this effect being stronger in the uk the euro area and sweden compared to canada australia and japan overall the results indicate that exchange rate or credit controls on these flows can be used as a policy tool in countries with strong uncertainty effects to pursue economic and financial stability

the impact of exchange rate volatility on international trade reduced form estimates using the garch in mean model abstract in this paper we use a multivariate garch in mean model of the reduced form of multilateral exports to examine the relationship between nominal exchange rate volatility and export flows and prices the model imposes rationality on perceived exchange rate volatility unlike conventional two step strategies tests are performed for five industrialized countries over the post bretton woods era we find that the garch conditional variance has a statistically significant impact on the reduced form equations for all countries for most of the countries the magnitude of the effect is stronger for export prices than quantities in addition the estimated magnitude of the impact of volatility on exports is not robust to using the conventional estimation strategy jel f41 f31

a theory of ambiguity credibility and inflation under discretion and asymmetric information this paper develops a positive theory of credibility ambiguity and inflation under discretion and asymmetric information the monetary policymaker maximizes his own politically motivated objective function that is positively related to economic stimulation through monetary surprises and negatively related to monetary growth the relative importance he assigns to each target shifts stochastically through time his current preference trade off is known to him but not to the public when choosing the state contingent path of money growth for the present and the future the policymaker compares the benefits from current stimulation with the costs associated with higher future inflation expectations current monetary growth conveys information to the public about future money growth because there is persistence in the policymaker s objectives although expectations are rational information is imperfect because monetary control procedures are imprecise as a result the public cannot correctly distinguish persistent changes of emphasis on different policy objectives from transitory monetary control errors the public becomes aware of changes gradually by observing past monetary growth credibility is defined in terms of the speed with which the public recognizes changes in the objectives of the policymaker credibility is lower the noisier monetary control and the more stable the objectives of the policymaker looser monetary control and a higher degree of time preference on the part of the policymaker induce him to produce higher and more variable monetary growth when the policymaker is free to determine the accuracy of monetary control he does not always choose the most effective control available in spite of the fact that monetary surprises always have an expected value of zero the reason is that ambiguous control procedures enable the policymaker to generate positive surprises when he cares more than on average about economic stimulation he leaves the inevitable negative surprises for periods in which he cares more about inflation prevention this result provides an explanation for the fed s preference for ambiguity recently documented by goodfriend 1986 the policymaker is more likely to pick more ambiguous control procedures the more uncertain his objectives and the higher his time preference the paper also provides a theoretical underpinning for the well documented crosscountry positive correlation between the level and the variability of inflation

another perspective on the effects of inflation uncertainty this paper examines the effects of inflation uncertainty on real economic activity by utilizing a flexible dynamic multivariate framework that accommodates possible interaction between the conditional means and variances the empirical model is based on a familiar identified vector autoregressive framework modified to accommodate multivariate generalized autoregressive conditional heteroskedasticity our empirical model is preferred to the baseline var by likelihood based information criteria and it retains the important dynamics of the underlying var we find that an average shock to inflation uncertainty has tended to reduce output growth over three months by about 22 basis points

classifying exchange rate regimes deeds vs words abstract most of the empirical literature on exchange rate regimes uses the imf de jure classification based on the regime announced by the governments despite the recognized inconsistencies between reported and actual policies in many cases to address this problem we construct a de facto classification based on data on exchange rates and international reserves from all imf reporting countries over the period 1974 2000 which we believe provides a meaningful alternative for future empirical work on the topic the classification sheds new light on several stylized facts previously reported in the literature in particular we find that the de facto pegs have remained stable throughout the last decade although an increasing number of them shy away from an explicit commitment to a fixed regime hidden pegs we confirm the hollowing out hypothesis but show that it does not apply to countries with limited access to capital markets we also find that pure floats are associated with only relatively minor nominal exchange rate volatility and that the recent increase in the number of de jure floats goes hand in hand with an increase in the number of de facto dirty floats fear of floating

international trade and exchange rate volatility for currencies with well developed forward markets several papers have investigated the conjectured negative relationship between trade and short term exchange rate volatility without being very successful a theoretical explanation for the empirical anomalies is provided by solving explicitly for the forward rate because importers and exporters are on opposite sides of the forward market so is their exposure towards exchange rate volatility moreover which trade flow benefits and which one loses from increased volatility is determined by the signs of the aggregate net foreign currency exposure and the aggregate measure of risk aversion

on the trade impact of nominal exchange rate volatility what is the effect of nominal exchange rate variability on trade i argue that the methods conventionally used to answer this perennial question are plagued by a variety of sources of systematic bias i propose a novel approach that simultaneously addresses all of these biases and present new estimates from a broad sample of countries from 1970 to 1997 the estimates indicate that nominal exchange rate variability has no significant impact on trade flows

commodity prices and bric and g3 liquidity a sfavec approach this paper investigates the influence of liquidity in the major developed and major developing economies on commodity prices liquidity is taken to be m2 a novel finding is that unanticipated increases in the bric countries liquidity is associated with significant and persistent increases in commodity prices that are much larger than the effect of unanticipated increases in g3 liquidity and the difference increases over time over 1999 2012 bric liquidity is strongly linked with global energy prices and global real activity whereas g3 liquidity is not the impact of bric liquidity on mineral and metal prices is twice as large as that of g3 liquidity granger casualty goes from liquidity to commodity prices bric and g3 liquidity and commodity prices are cointegrated bric and g3 liquidity and global output and global prices are cointegrated we construct a structural factor augmented error correction sfavec model

the asymmetric effects of uncertainty on inflation and output growth we study the effects of growth volatility and inflation volatility on average rates of output growth and inflation for post war us data our results suggest that increased growth uncertainty is associated with significantly lower average growth while higher inflation uncertainty is significantly negatively correlated with lower output growth and lower average inflation both inflation and growth display evidence of significant asymmetric response to positive and negative shocks of equal magnitude copyright 2004 john wiley sons ltd

exchange rate volatility and international trading strategy abstract it is usually argued that an increase in exchange rate volatility reduces the volume of international trade as trading firms are risk averse this paper shows that exporting firms benefit under fairly general conditions from an increase in exchange rate volatility firms optimally adjust their export volumes to the level of the exchange rate exporting is an option which is exercised if profitable in addition the paper presents conditions under which the volume of international trade grows with exchange rate volatility

exchange rate shocks and trade a multivariate garch m approach abstract we build on the recent literature studying the effects of uncertainty on trade by introducing a model that combines a reduced form vector autoregression for the growth rates of exports foreign income and the real exchange rate rer with a multivariate garch model up to 12 lags of several conditional standard deviations are added to relevant mean equations and all parameters are estimated simultaneously using maximum likelihood thus allowing us to avoid two step procedures that are common in the literature using a large data set of both developed and emerging countries we find evidence that rer uncertainty negatively impacts trade for several less developed countries we also find that rer uncertainty tends to be associated with a real currency appreciation when we compute generalized impulse response functions to study the impacts of unexpected shocks to rer growth on export growth the results are typically asymmetric positive shocks generate substantial negative responses while unexpected depreciations produce relatively smaller positive responses especially in our developing country sample

exchange rate regimes in the modern era fixed floating and flaky this paper provides a selective survey of the incidence causes and consequences of a country s choice of its exchange rate regime i begin with a critical review of michael klein and jay c shambaugh s 2010 book exchange rate regimes in the modern era and then proceed to provide an alternative overview of what the economics profession knows and needs to know about exchange rate regimes while a fixed exchange rate with capital mobility is a well defined monetary regime floating is not thus it is unclear whether it is theoretically sensible to compare countries across exchange rate regimes this comparison is quite difficult to make empirically it is often hard to figure out what the exchange rate regime of a country is in practice since there are multiple conflicting regime classifications more importantly similar countries choose radically different exchange rate regimes without substantive consequences for macroeconomic outcomes like output growth and inflation that is the profession knows surprisingly little about either the causes or consequences of national choices of exchange rate regimes but since the consequences of these choices are small understanding their causes is of only academic interest jel e52 f33

bilateral trade flows the linder hypothesis and exchange risk bilateral trade flows are used to examine the linder hypothesis and the effect of exchange rate variability in a gra vity type trade model derived from an underlying demand and supply mo del a behavioral model is used to justify examining these issues joi ntly the model performs well empirically using a sample of seventeen countries for the period 1974 82 the authors find overwhelming supp ort for the linder hypothesis and this version of the gravity model moreover they find strong support for the hypothesis that increased exchange rate variability affects bilateral trade flows copyright 1987 by mit press

fear of appreciation abstract in recent years the term fear of floating has been used to describe exchange rate regimes that while officially flexible in practice intervene heavily to avoid sudden or large depreciations however the data reveals that in most cases and increasingly so in the 2000s intervention has been aimed at limiting appreciations rather than depreciations often motivated by the neo mercantilist view of a depreciated real exchange rate as protection for domestic industries as a first step to address the broader question of whether this view delivers on its promise we examine whether this fear of appreciation has a positive impact on growth performance in developing economies we show that depreciated exchange rates indeed lead to higher growth but that the effect rather than through import substitution or export booms as argued by the mercantilist view works largely through the deepening of domestic savings and capital accumulation

exchange rate volatility international trade and the value of exporting firms abstract increased exchange rate volatility positively affects the value of exporting firms via the price and volume impacts of exchange rates and also makes an exporting strategy more attractive relative to the direct investment investment in export production capacity could therefore be a positive function of exchange rate volatility firms would also be more willing to sustain losses i e to engage in dumping before they abandon their export markets the effect on the volume and value of trade is ambiguous

does exchange rate risk affect exports asymmetrically asian evidence abstract this paper tests the hypothesis of asymmetric effects of exchange rate risk with a dynamic conditional correlation bivariate garch 1 1 m model the asymmetry means that exchange rate risk volatility affects exports differently during appreciations and depreciations which may reflect exporter s asymmetric risk perception and hedging behavior using bilateral exports from eight asian countries to the us the real exchange rate risk significantly affects exports for all countries negative or positive in periods of depreciation or appreciation thus policy makers can consider the stability of the exchange rate in addition to its depreciation as a method of controlling export growth

mediators in position auctions abstract a mediator is a reliable entity which plays on behalf of the players who give her the right to play the mediator acts in a pre specified way based on messages received from the players however a mediator cannot enforce behavior that is players can play in the game directly without the mediator s help a mediator generates a new game for the players the mediated game the outcome in the original game of an equilibrium in the mediated game is called a mediated equilibrium monderer and tennenholtz introduced a theory of mediators for games with complete information we extend the theory of mediators to games with incomplete information and apply the new theory to position auctions a central topic in electronic commerce we provide a minimal set of conditions on position auctions which is sufficient to guarantee that the vcg outcome function is a mediated equilibrium in these auctions

does exchange rate stability increase trade and welfare we develop a simple general equilibrium framework to study the effect of the exchange rate system on trade and welfare an important feature of the model is deviations from purchasing power parity caused by rigid price setting in buyers currency we find the following first exchange rate stability is not necessarily associated with more trade in a simple benchmark model with separable preferences and only monetary shocks trade is unaffected by the exchange rate system consistent with most evidence second both trade and welfare can be higher under either exchange rate system depending on preferences and on the monetary policy rules followed under each system finally in general there is no one to one relationship between the levels of trade and welfare across exchange rate systems

the role of exchange rates in a popular model of international trade abstract this paper examines the empirical relationship between the real effective exchange rate and the aggregate real trade balance for five major oecd countries in the post bretton woods era a variety of parametric and non parametric techniques are used there is little evidence that the exchange rate significantly affects the trade balance

the impact of exchange rate volatility on international trade flows despite the best efforts of economists a basic paradox as to the impact of exchange rate volatility on trade flows remains unresolved at both the theoretical and empirical level this paper surveys the vast literature in the area in an attempt to identify major issues which have contributed to the development of the debate and examine whether any general direction for consensus may be found

uncertainty and export performance evidence from 18 countries we study a sample of nine developed and nine developing countries to evaluate the questions of how foreign income uncertainty and real exchange rate rer uncertainty impact international trade and how those impacts vary according to stage of development rer uncertainty has a negative and significant impact on export growth for six of the nine less developed countries in our sample while it has an insignificant effect for a majority of the developed countries in both groups foreign income uncertainty has a more pervasively significant and frequently larger influence on trade than does rer uncertainty

the modern history of exchange rate arrangements a reinterpretation we develop a novel system of reclassifying historical exchange rate regimes one key difference between our study and previous classifications is that we employ monthly data on market determined parallel exchange rates going back to 1946 for 153 countries our approach differs from the imf official classification which we show to be only a little better than random it also differs radically from all previous attempts at historical reclassification our classification points to a rethinking of economic performance under alternative exchange rate regimes indeed the breakup of bretton woods had less impact on exchange rate regimes than is popularly believed

reputation and regulations evidence from ebay to mitigate inefficiencies arising from asymmetric information some markets rely on government interventions whereas others rely on reputation systems warranties or guarantees this paper explores the impact of two mechanisms namely reputation badges and buyer protection programs and their interaction on ebay s marketplace adding buyer protection reduces the premium for the reputation badge and increases efficiency in the marketplace these efficiency gains are achieved by reducing moral hazard through an increase in sellers quality and by reducing adverse selection through a higher exit rate for low quality sellers our estimates suggest buyer protection increases the total welfare by 2 9 this paper was accepted by matt shum marketing