Title page for ETD etd-06232003-095319


Type of Document Master's Thesis
Author Pickard, Joseph Conlin
Author's Email Address jpickard@vt.edu
URN etd-06232003-095319
Title Exchange Rate Volatility and Bilateral Trade Flows: An Analysis of U.S. Demand for Certain Steel Products from Canada and Mexico
Degree Master of Arts
Department Economics
Advisory Committee
Advisor Name Title
Lutz, Nancy A. Committee Chair
Ashley, Richard A. Committee Member
Keywords
  • steel industry
  • exchange rates
  • volatility
  • international trade
  • stochastic coefficients
Date of Defense 2003-06-14
Availability unrestricted
Abstract
This empirical study uses stochastic coefficients econometric modeling to forecast real exchange rate volatility and examine how expected and unexpected volatility affect bilateral trade flows of certain steel products between Canada, Mexico and the United States using monthly data for the seven-year period 1996-2002. The results of the model indicate that the effects of exchange rate volatility on bilateral trade flows for this sector are relatively minor, where sustained changes in the spot exchange rate, sectoral economic growth, and the price of goods being traded all exert more significant influence on trade levels than exchange rate volatility. However, the model results also tend to indicate that as exchange rate volatility increases, the well-developed U.S.-Canadian forward currency exchange market may present economic agents with profit opportunities through risk-portfolio diversification, resulting in a positive correlation between volatility and trade. For the less-developed U.S.-Mexican forward currency market, the model results indicate that the relationship between trade and volatility, both expected and unexpected, is weak and predominantly negative.
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