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Exchange-rate volatility and export performance: Do emerging market economies resemble industrial countries or other developing countries?

By Stephen Hall, George Hondroyiannis, P.A.V.B. Swamy, George Tavlas and Michael Ulan

Abstract

Authors who do not distinguish between Emerging Market Economies (EMEs) and other developing countries, find evidence of negative and significant effects of exchange-rate volatility on trade. We investigate the effects of real exchange-rate volatility on exports of ten EMEs and eleven other developing countries that were not classified as EMEs over our estimation period. We use panel-data sets that cover the periods 1980:Q1-2006:Q4 for the EMEs and 1980:Q1-2005:Q4 for the other developing countries. We use two estimation methods -- generalized method of moments (GMM) estimation and time-varying-coefficient (TVC) estimation. The TVC procedure removes specification biases from the coefficients, revealing the underlying stable parameters of interest. We obtain similar results as previous authors for only the eleven non-EME developing countries we consider. In contrast, our results for the EMEs do not show a negative and significant effect of exchange-rate volatility on the exports of the countries considered. Our findings suggest that the open capital markets of EMEs may have reduced the effects of exchange-rate fluctuations on exports compared with those effects in the cases of other developing countries.Exchange-rate volatility Trade Random-coefficient estimation Generalized method of moments Panel data

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