Exchange Rate Regimes and International Trade

The existing evidence on the volume effects of exchange rate risk and exchange rate regime choice is examined. The analysis involves estimating the effects of cross-country differences in exchange rate regime on export and import elasticities using a continuous measure of the degree of exchange rate flexibility. It is argued that risk for firms involved in international trade tends to decrease with greater exchange rate flexibility. In formulating our hypotheses we argued that the cross-country variation in U.S. export elasticities with respect to the real exchange rate and foreign GDPs is primarily attributable to the cross- country variation in bilateral exchange rate regime-related risk. The empirical results showed that U.S. export elasticities increase with the degree of bilateral exchange rate flexibility of the importing country. We interpreted this result as an indication that the total macroeconomic risk exporters face decreases as the degree of exchange rate flexibility increases.https://digitalcommons.chapman.edu/business_books/1001/thumbnail.jp