This paper investigates the effects of exchange rate uncertainty on the volume and variability of trade flows. Employing a signal extraction framework, we show that the direction and magnitude of importers' and exporters' optimal trading activities depend upon the source of the uncertainty...

This paper investigates the effects of permanent and transitory components of the exchange rate on firms' profitability under imperfect information. Utilizing a signal extraction framework, we show that the variances of these components of the exchange rate process will have indeterminate...