The asymmetric effects of exchange rate volatility on US–Pakistan trade flows: new evidence from nonlinear ARDL approach

Earlier studies that examined the response of trade flows to exchange rate volatility relied on the assumption that increased volatility and decreased volatility behave in a symmetric way; however, due to change in expectations of traders toward increasing volatility and decreasing volatility, the e...

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Bibliographic Details
Published inEconomic change and restructuring Vol. 55; no. 1; pp. 225 - 255
Main Authors Iqbal, Javed, Aziz, Sabahat, Nosheen, Misbah
Format Journal Article
LanguageEnglish
Published New York Springer US 01.02.2022
Springer Nature B.V
Subjects
Asymmetry
Bias
Commodities
Development Economics
Economic Growth
Economic Policy
Economic reform
Economics
Economics and Finance
Exports
Fixed exchange rates
Foreign exchange rates
International Economics
International trade
Macroeconomics/Monetary Economics//Financial Economics
Political Economy/Economic Systems
Symmetry
Trade flows
Volatility
United States > US
Pakistan
Exchange rate volatility
Asymmetric effects
USA
Pakistan
Commodity trade
Nonlinear ARDL
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Summary:Earlier studies that examined the response of trade flows to exchange rate volatility relied on the assumption that increased volatility and decreased volatility behave in a symmetric way; however, due to change in expectations of traders toward increasing volatility and decreasing volatility, the effects could be asymmetric; hence, the empirical results of these studies are supposed to have masked by the restricted assumption of symmetry between exchange rate and trade flows. This study investigates both the symmetric and asymmetric effects of exchange rate volatility on trade flows between Pakistan and USA at industry level over the period 1981–2018. We find evidence of a significant effect of asymmetric exchange rate volatility on trade flows in almost one-half (1/2) of importing and exporting industries of Pakistan that trade with the USA both in the short run and in the long run.
ISSN:1573-9414
1574-0277
DOI:10.1007/s10644-020-09310-8