Exchange Rate Volatility and Trade: A Literature Survey

This paper reviews the literature dealing with the effects of exchange rate volatility on trade. The overall evidence is best characterized as mixed as the results are sensitive to the choices of sample period, model specification, proxies for exchange rate volatility and countries considered (developed vs developing). Numerous empirical studies have been conducted to investigate whether trade is influenced by exchange rate volatility. It is widely believed that increased exchange rate volatility inhibits the growth of foreign trade.