The Impact of Exchange Rate Volatility on International Trade Flows

EasyChair Preprint 15218

Abstract

This paper investigates the relationship between exchange rate volatility and international trade flows, combining both theoretical and empirical approaches. Exchange rate volatility, defined as fluctuations in a country's currency value relative to others, is a crucial factor that affects the decisions of exporters and importers—Using a gravity model framework, this paper analyzes the bilateral trade flows between the United States and its top 30 trading partners from 1995 to 2022. The empirical findings show that a 1% increase in exchange rate volatility leads to a 0.5% decrease in trade flows, highlighting the negative impact of uncertainty on international trade. The paper concludes by discussing policy recommendations for mitigating the adverse effects of exchange rate fluctuations on trade.

Keyphrases: Hedging, empirical analysis, exchange rate volatility, gravity model, international trade, macroeconomic policy, trade flows

@booklet{EasyChair:15218,
  author    = {Ibrahim Musa},
  title     = {The Impact of Exchange Rate Volatility on International Trade Flows},
  howpublished = {EasyChair Preprint 15218},
  year      = {EasyChair, 2024}}