The Effect of Real Exchange Rate Volatility on Bilateral Sector Exports

This paper, utilizing cointegration and error correction models, examines the long run and short run impacts of exchange rate volatility on United States sector exports to Canada, France, Germany, Italy, Japan, and the United Kingdom. A long run cointegrating vector was found to exist for the majority of the sectors in all countries. However, there was not a consistent finding as to whether this relation was positive or negative. This, therefore, signifies the importance and relevance of investigating export trade by sectors rather than in aggregate since different sectors react differently to exchange rate volatility. The short run models provide evidence of the relevance of the long run equilibrating factor of the error correction term. However, only in a limited number of cases is exchange rate volatility causing trade in the Granger sense through lagged values.