The Effect of Real Exchange Rate Volatility on Exports in the Baltic Region

In this paper we analyze the effects of the real exchange rate volatility on exports in the Baltic region. The study focuses on three countries in the Baltic region, namely, Estonia, Latvia, and Lithuania, and uses quarterly exports of these countries to their major trading partners over the period from 1993Q1 to 2014Q4. It uses both the panel co-integration analysis and the method of bounds testing or the Autoregressive Distributed Lag (ARDL) approach to co-integration analysis to estimate the short-run and long-run effects of the real exchange rate volatility on exports. Our results reveal that exports depend positively on the levels of foreign economic activity but negatively on relative prices and real exchange rate. However, the exchange rate volatility tends to provide mixed effects. Furthermore, the effects of exchange volatility are found to yield mixed effects both in the short-run and the long-run. The results also indicate that the effects vary from country to country