The effect of Exchange rate volatility on exports from European countries to Non-European countries

Abstract

In this study, the effect of exchange rate volatility on export flow from four European countries (UK, Spain, Italy, France) to four non-european countries (Canada, India, Korea, USA) over a period from January 1996 till December 2012 was analysed. The GARCH model is employed to generate exchange rate volatility. Apart from exchange rate volatility relative price and real income in exporter country were added as explanatory variables. ADF test to check the presence of unit root for each variables in the regression. In order to find causality between export flow and these three explanatory variables OLS regression method is applied. The results of OLS regression show that exchange rate volatility has a significant positive effect on export from UK to Canada and from Spain to India. Exchange rate volatility depresses the volume of export from Italy to Korea and has no effect on trade between France and USA.