Why is it so Difficult to Find An Effect of Exchange Rate Risk on Trade?

F.J.G.M. Klaassen

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The question whether exchange rate risk a¤ects trade has received considerable attention in the literature. However, the conclusions are still mixed. This paper analyzes why it is so difficult to obtain a clear answer from time series analyses. We use data on bilateral aggregate US exports to the other G7 countries. The results show that export decisions are mostly affected by the exchange rate about one year later. The riskiness of the exchange rate at such a long horizon appears fairly constant over time with only short-term fluctuations. This makes it difficult to discover the true effect of exchange risk on trade from the limited time series data that are typically available.
Original languageEnglish
Place of PublicationTilburg
Number of pages25
Publication statusPublished - 1999

Publication series

NameCentER Discussion Paper


  • Exports
  • risk measurement
  • imperfect substitutes
  • distributed lags


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