Recent advances in nonlinear modeling or asymmetry analysis have revealed that nonlinear models produce more significant results compared to linear models. Only one study has demonstrated this with establishing the link between exchange rate volatility and trade flows. We add to the body of literature by considering the possibility of asymmetric effects of exchange rate volatility on commodity trade between Mexico and the U.S. After considering a total of 95 U.S. exporting industries to Mexico and 89 U.S. importing industries from Mexico, we find evidence of short-run asymmetric effects in 54 exporting and 46 importing industries. Short-run asymmetric effects translate into long-run asymmetric effects in 44 exporting and 47 importing industries. These asymmetric effects were masked by the linear model which assumes the effects to be symmetric and they have different implication for different industries.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics