Exchange Rate Volatility and US Import Demand for Salmon

In this article, a risk-augmented differential demand system is developed to test the effects of exchange rate volatility (ERV) on trade. Applying the model to data on US imports of salmon from Chile, Canada, Norway, the United Kingdom, and Rest of World (ROW), results indicate ERV reduces imports. The effect, however, is modest in that the ERV elasticities are only 15% as large as price elasticities. Overall, US imports of salmon are much more sensitive to changes in relative prices and income than to changes in ERV. Bias in the estimated price and expenditure elasticities associated with omitting the ERV variables from the model in some cases is non-trivial.