The increasing of exchange rate volatility, especially after the break-down of the Bretton Woods Agreement Accord in 1993, and the advent of floating exchange rates regime, has been a constant source of concern for both policy makers and academics. The adaption of floating exchange rates regime by several countries and the subsequent occurrences of recurrent exchange rate volatilities around several economies called for a thorough investigation on the impacts of exchange rate volatility on trade, investment and on other macro-economic variables.
For example, after countries started embracing the new floating exchanges regime, real and nominal exchange rates were suffered periods of substantial fluctuations, international trade volume and …show more content…
For example, several studies find the relationship between trade and volatility to be inclusive, with a large number of studies find some sort of correlation, positive or negative, while others find either weak or insignificant correlation between the two variables.
Studies which find a negative correlation between trade and volatility include: Onafowara and Owoye (2008), Bayrne, Darby, and MacDonald (2008), Choudhry (2005), Bahmanee-Oskooee (2002), Arize, et al. (2000), Arize (1995), Chowdhury (1993), pozo (1992), and Bahmani-Oskeooee and Ltaifa (1992). According to these scholars, exchange rate volatility affects international trade directly through uncertainty and adjustment costs especially for risk-averse exporters and investors. They also argue that the effects of volatility can have an indirect impact on the structures of output, investment and government …show more content…
Doyle (2001), Chou (2000), McKenzie and Brooks (1997), Qian and Varangis (1994), Kroner and Lastrapes (1993), and Asseery and Peel (1991). These scholars argue the effects of volatility have a positive effect on export as volatility invites potential exporters and investors (who are assumed to be risk-tolerant) to mobilize their output and resources across borders. Apart from the above findings, there are also a significant number of studies which find no significant correlation between volatility and international trade (e.g. Aristotelous (2001), Bahmani-Oskooee and Payestch (1993), Bahmani-Oskooee (1991), and Hooper and Kohlhagen (1978).
Another factor which has been another source of concern for policy makers and scholars was the issue of exchange rate volatility and foreign direct investment. As globalization became prevalent, a significant number of investors were motivated to consider overseas investment for various reasons, ranging from in search of a cheap labor to tax exemptions, and new market
For example, after countries started embracing the new floating exchanges regime, real and nominal exchange rates were suffered periods of substantial fluctuations, international trade volume and …show more content…
For example, several studies find the relationship between trade and volatility to be inclusive, with a large number of studies find some sort of correlation, positive or negative, while others find either weak or insignificant correlation between the two variables.
Studies which find a negative correlation between trade and volatility include: Onafowara and Owoye (2008), Bayrne, Darby, and MacDonald (2008), Choudhry (2005), Bahmanee-Oskooee (2002), Arize, et al. (2000), Arize (1995), Chowdhury (1993), pozo (1992), and Bahmani-Oskeooee and Ltaifa (1992). According to these scholars, exchange rate volatility affects international trade directly through uncertainty and adjustment costs especially for risk-averse exporters and investors. They also argue that the effects of volatility can have an indirect impact on the structures of output, investment and government …show more content…
Doyle (2001), Chou (2000), McKenzie and Brooks (1997), Qian and Varangis (1994), Kroner and Lastrapes (1993), and Asseery and Peel (1991). These scholars argue the effects of volatility have a positive effect on export as volatility invites potential exporters and investors (who are assumed to be risk-tolerant) to mobilize their output and resources across borders. Apart from the above findings, there are also a significant number of studies which find no significant correlation between volatility and international trade (e.g. Aristotelous (2001), Bahmani-Oskooee and Payestch (1993), Bahmani-Oskooee (1991), and Hooper and Kohlhagen (1978).
Another factor which has been another source of concern for policy makers and scholars was the issue of exchange rate volatility and foreign direct investment. As globalization became prevalent, a significant number of investors were motivated to consider overseas investment for various reasons, ranging from in search of a cheap labor to tax exemptions, and new market