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Title: |
The Threshold Effect of Exchange Rate Volatility on Trade Volume: Evidence from G-7 Countries |
| Author: |
Zhang, Yanhong, Hui S. Chang, and Jean Gauger |
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Affiliation: |
Renmin University of China, Beijing, China;University of Tennessee, Knoxville, Tennessee, USA |
| Source: |
International Economic Journal, December 2006, v. 20, no. 4, pp. 461-476 |
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Publication Date: |
December 2006 |
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Abstract: |
This paper uses a threshold model to examine a possible threshold effect in the impact of exchange rate volatility on trade volume for the bilateral trade volumes between the US and other G-7 countries. A grid-searching method is used to obtain the threshold points, and time-series econometric techniques are applied to estimate the long run stable relationships as well as short-run dynamics. The results support the existence of nonlinearity in the effect of exchange rate volatility, and indicate that trade volume tends to increase when exchange rate volatility surpasses certain threshold point.
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