Who is hurt by dollar-euro volatility in the euro zone?

Mohsen Bahmani-Oskooee, Hanafiah Harvey

Research output: Contribution to journalArticle

Abstract

Exchange rate volatility is said to have negative or positive effects on trade flows, depending on the degree of traders' risk aversion. However, due to changes in their expectations, the effects of exchange rate volatility on trade flows could be asymmetric. We add to this new asymmetry literature by investigating the impact of dollar-euro volatility on the U.S. trade flows with each of the 12 original members of the euro zone in order to identify members that are hurt by volatility. We find that trade flows of the U.S. with all members are affected by volatility asymmetrically in the short run. The short-run asymmetric effects last into long-run asymmetric effects in U.S. exports to nine of the 12 members and in U.S. imports from two members. Additional analysis revealed that increased exchange rate volatility will boost U.S. exports to Greece and U.S. imports from Austria and Portugal. On the other hand, decreased volatility will hurt U.S. exports to Greece and boost its exports to Italy, the Netherlands, and Portugal while having no long-run impact on U.S. imports from any partner.

Original languageEnglish (US)
Pages (from-to)36-47
Number of pages12
JournalInternational Economics
Volume159
DOIs
StatePublished - Oct 1 2019

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Euro zone
Trade flows
Import
Exchange rate volatility
Short-run
Greece
Portugal
Asymmetric effects
Italy
Traders
Austria
Risk aversion
Asymmetry
The Netherlands

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting(all)
  • Economics, Econometrics and Finance(all)

Cite this

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abstract = "Exchange rate volatility is said to have negative or positive effects on trade flows, depending on the degree of traders' risk aversion. However, due to changes in their expectations, the effects of exchange rate volatility on trade flows could be asymmetric. We add to this new asymmetry literature by investigating the impact of dollar-euro volatility on the U.S. trade flows with each of the 12 original members of the euro zone in order to identify members that are hurt by volatility. We find that trade flows of the U.S. with all members are affected by volatility asymmetrically in the short run. The short-run asymmetric effects last into long-run asymmetric effects in U.S. exports to nine of the 12 members and in U.S. imports from two members. Additional analysis revealed that increased exchange rate volatility will boost U.S. exports to Greece and U.S. imports from Austria and Portugal. On the other hand, decreased volatility will hurt U.S. exports to Greece and boost its exports to Italy, the Netherlands, and Portugal while having no long-run impact on U.S. imports from any partner.",
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Who is hurt by dollar-euro volatility in the euro zone? / Bahmani-Oskooee, Mohsen; Harvey, Hanafiah.

In: International Economics, Vol. 159, 01.10.2019, p. 36-47.

Research output: Contribution to journalArticle

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