Exchange Rate Volatility and Trade: An Empirical Analysis of Sweden's Bilateral Trade Flows
Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
The purpose of this paper is to test empirically how well three alternative model formulations manage to explain the effect of exchange rate volatility on Sweden’s bilateral trade flows with 15 of its important trading partners. We test this through multiple time series analyses using aggregate data from the OECD, SCB, and Riksbank. None of the models is able to describe Sweden’s bilateral trade flows systematically for the period between February 1995 and October 2011. It is found that the volatility measured with the GARCH method has a significant effect in nine out of the thirty investigated cases. In five cases, we find a negative relationship, while four cases display a positive effect of exchange rate volatility on bilateral trade flows. These mixed results are in line with previous research. Swedish exports seem to be more affected by exchange rate volatility than Swedish imports. In addition, we find some evidence that the volatilities of vehicle currencies have an effect on Swedish bilateral trade flows.
Place, publisher, year, edition, pages
2012. , 40 p.
IdentifiersURN: urn:nbn:se:hj:diva-19020OAI: oai:DiVA.org:hj-19020DiVA: diva2:540309
UppsokSocial and Behavioural Science, Law
Johansson, BörjeWarda, Peter