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The B.E. Journal of Macroeconomics

Editor-in-Chief: Abraham, Arpad / Cavalcanti, Tiago

Ed. by Carceles-Poveda , Eva / Kambourov, Gueorgui / Lambertini, Luisa / Ruhl, Kim

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Exchange Rate Uncertainty and Trade

Ching-Yi Lin1

1National Tsing Hua University,

Citation Information: The B.E. Journal of Macroeconomics. Volume 12, Issue 1, ISSN (Online) 1935-1690, DOI: 10.1515/1935-1690.2389, April 2012

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This study offers an explanation of the common empirical finding in the literature that exchange rate uncertainty only slightly or insignificantly impacts export volume. When export volume is decomposed into the extensive and intensive margins, panel regressions presented in this study reveal that exchange rate uncertainty negatively affects the extensive margin and positively affects the intensive margin, with both effects being statistically significant. These two opposing effects cancel each other out when combined, producing an insignificant effect on overall export volume. This study goes on to develop an analytically tractable monetary model of heterogeneous firms and endogenous extensive and intensive margins, which predicts these empirical results.

Keywords: exchange rate volatility; the extensive margin of exports; heterogeneity

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