DOES EXCHANGE RATE UNCERTAINTY IMPEDE TRADE FLOWS IN TRANSITION ECONOMIES?

Аннотация

A link between exchange rate uncertainty and trade flows has been substantially investigated in the literature over the past a few decades due to its importance in exchange rate arrangement and trade policies. This study examines the topical issue for a set of transition countries, namely, Kazakhstan, Russia, and Ukraine. Despite the existence of numerous theoretical and empirical studies in this context, however, until recently transition economies have been paid little attention due to a limited number of time series observations for the empirical analysis. Now enough observations are available and this study attempts to redress that imbalance. This study employs the ARDL bounds testing approach to analyze the short-run and long-run impacts of exchange rate uncertainty on exports. To quantify an exchange rate uncertainty variable, a number of univariate generalized autoregressive conditional heteroskedasticity models are estimated and the most favored one has been selected for each country under concern based on a number of information criteria and residual diagnostic tests. The conditional standard deviation series from the favored conditional eteroskedastic models are, then, incorporated into the trade models to assess the impact of exchange rate volatility. Turning to our findings, the following results deserve emphasis. First, our results have mainly confirmed the findings in a number of the recent studies, namely, that exchange rate risk negatively affects exports in Ukraine. Second, for Russia and Kazakhstan that are heavily dependent on fossil oil exports, the impact is found to be ambiguous.