The relationship between international trade and exchange rate variability: A review study

Abstract

The paper was conducted to survey and review the effects of exchange rate volatility on trade performance. Since the last review articles by McKenzie and Bahmani-Oskooe and Hegerty, the literature has experienced a surge in the number of articles. Many of the recent studies have been empirical in nature and these deserve specific attention. There is often more than one measure of volatility applied in a study, and some new measures of exchange rate volatility are introduced. Although there are relatively new econometric models being applied in this research area, the determinants of trade performance in recent studies are simple. In addition, the number of studies using bilateral trade data levels has increased over time. Although a large number of studies are reviewed in this study, existing empirical evidence on the trade effects of exchange rate volatility is generally inconclusive. These new contributions set the stage for this review.