Skip to main content
Article thumbnail
Location of Repository

The Impact of Kuna Exchange Rate Volatility on Croatian Exports

By Petar Soric


The aim of this paper is to analyze the monetary transmission mechanism through the influence of exchange rate variability on export volume. To date it has been very common to use “historical volatility” as an approximation for exchange rate variability in empirical studies. However, many macroeconomic time series are characterized by heteroskedasticity, i.e. their variance is not constant over time. Thus in this paper the ARCH model is proposed as a model of conditional heteroskedasticity. Also, as an alternative to ARCH we will introduce historical volatility based not only on future but also on past exchange rate values. In exploring the influence of exchange rate volatility and domestic income on export volume, Johansen’s multivariate cointegration approach and error-correction model (ECM) are used. The short run and long run relationships are analyzed separately. The results of econometric analysis draw attention to the different strengths of the relationship between kuna volatility and exports for the two proposed models. The first model shows a mild negative long-run relationship, while the second shows the much stronger aversion of Croatian exporters to volatility as a measure of exchange rate uncertainty.ARCH model, Johansen’s approach, ECM model, cointegration

OAI identifier:

Suggested articles


  1. (1989). A new look at the Statistical Model Identification”.
  2. (2006). Analiza tečaja i vrednovanja opcija na tečaj na hrvatskom tržištu: NGARCH model kao alternativa modelu Blacka i Scholesa. Zagreb: Ekonomski fakultet.
  3. (2006). Applied econometrics, A modern approach using E-views and Microfit.
  4. (1982). Autoregressive Conditional Heteroscedasticity with estimates of the
  5. (1995). Cointegration analysis in econometric modeling. Harvester Wheatsheaf:
  6. (1996). Consistency and asypmtotic normality of the quasi-maximum likelihood estimator in IGARCH(1,1) and covariance stationary GARCH(1,1) models”.
  7. (1979). Distributions of the Estimators for Autoregressive Time Series with Unit Root”.
  8. (2006). Econometric Analysis of Monetary Transmission Channels in Croatia”. Privredna kretanja i ekonomska politika,
  9. (1980). Estimates of the Variance of US Inflation base on the ARCH model”. Universitiy of California, San Diego Discussion Paper,
  10. (1999). Exchange Rate Fluctuations and Trade Flows: Evidence from the European Union”.
  11. (1994). Exchange rate volatility and trade”.
  12. (1984). Exchange Rate Volatility and World Trade”.
  13. (2006). Financial Modeling Under NonGausian Distributions. Lausanne: University of Lausanne.369 P. Sorić: The Impact of Kuna Exchange Rate Volatility on Croatian Exports Financial Theory and
  14. (1984). Fixed Versus Flexible Exchange Rates and the Measurement of Exchange Rate Instability”.
  15. (2003). Međunarodna ekonomija. Zagreb: Mate.368 P. Sorić: The Impact of Kuna Exchange Rate Volatility on Croatian Exports Financial Theory and
  16. (2005). Novi kompozitni indikatori za hrvatsko gospodarstvo: prilog razvoju domaćeg sustava cikličkih indikatora“.
  17. (2000). One Money, One Market: The Effect of Common Currencies on Trade”. Economic Policy,
  18. (2004). Primijenjena statistika. Zagreb: Školska knjiga.
  19. (2007). Srednji devizni tečajevi Hrvatske narodne banke na kraju razdoblja [online]. Available from:
  20. (1988). Statistical Analysis of Cointegration Vectors“.
  21. (2004). Svojstva i procjena GARCH modela. Magistarski rad. Zagreb: Prirodoslovno-matematički fakultet.
  22. (2004). The analysis of Croatian export functions: evidence based on exchange rate volatility”.
  23. (1978). The Effect of Exchange Rate Uncertainty on the Prices and Volume of International Trade”.
  24. (1999). The impact of Exchange rate Volatility on International Trade Flows”.
  25. (1993). Trade Blocs and Currency Blocks”. Working Paper.
  26. (1973). Uncertainty, Exchange Risk, and the Level of International Trade”.
  27. (1996). Volatility Estimation for Stock Index Options: A GARCH approach”.

To submit an update or takedown request for this paper, please submit an Update/Correction/Removal Request.