Exchange Rate Volatility and Bilateral Trade Flows: An Analysis of U.S. Demand for Certain Steel Products from Canada and Mexico

This empirical study uses stochastic coefficients econometric modeling to forecast real exchange rate volatility and examine how expected and unexpected volatility affect bilateral trade flows of certain steel products between Canada, Mexico and the United States using monthly data for the seven-year period 1996-2002. The results of the model indicate that the effects of exchange rate volatility on bilateral trade flows for this sector are relatively minor, where sustained changes in the spot exchange rate, sectoral economic growth, and the price of goods being traded all exert more significant influence on trade levels than exchange rate volatility. However, the model results also tend to indicate that as exchange rate volatility increases, the well-developed U.S.-Canadian forward currency exchange market may present economic agents with profit opportunities through risk-portfolio diversification, resulting in a positive correlation between volatility and trade. For the less-developed U.S.-Mexican forward currency market, the model results indicate that the relationship between trade and volatility, both expected and unexpected, is weak and predominantly negative.

Name thesis:degree_name

Master of Arts

Level thesis:degree_level

masters

Discipline thesis:degree_discipline

Economics

Department dc:contributor.department

Economics

Grantor dc:publisher

Virginia Tech

Year dc:date.issued

2003

Author dc:creator

• Pickard, Joseph Conlin

Chair dc:contributor.committeechair

• Lutz, Nancy A.

Committee member dc:contributor.committeemember

• Ashley, Richard A.

• steel industry
• exchange rates
• volatility
• international trade
• stochastic coefficients

Statement dc:rights

• In Copyright

Licence dc:rights.uri

• http://rightsstatements.org/vocab/InC/1.0/

Dc Identifier Other

etd-06232003-095319

OAI identifier oai:identifier

oai:vtechworks.lib.vt.edu:10919/33702