The threshold effects of exchange rate volatility on exports: Evidence from US bilateral exports

Previous research that employed bilateral trading data in analyzing the impact of exchange rate volatility on real trading volume has yielded mixed results. Thus, it is possible that the effects are non-linear. This paper uses a threshold regression model proposed by Hansen (1999) to examine this impact on bilateral exports between the US and its top 13 trading partners. The estimated results illustrate that the threshold effects exist if the threshold variable is real gross domestic product (GDP) per capita of partner countries relative to US GDP per capita. Exchange rate volatility reduces the exports from the US to relative high-income partner countries but increases exports from the US to relative low-income partner countries.