DOES THE SERVICE TRADE OPENNESS MITIGATE REAL EXCHANGE RATE VOLATILITY?

  • Febrio Kacaribu University of Indonesia
  • Syahda Sabrina University of Indonesia
  • Teuku Muhammad Riefky Hasan University of Indonesia
Keywords: Real exchange rate, Trade openness, Money supply shock, Panel data

Abstract

This study examines the relationship between trade openness and exchange rate volatility. We use panel data of 52 countries and document trade openness has a negative and statistically significant effect on exchange rate volatility. The second explanatory variable considered in the model is money supply shock which is found to have a positive and statistically significant effect on exchange rate volatility. Our results survive battery of robustness checks.

Downloads

Download data is not yet available.

References

Aghion, P., P. Bacchetta, R., Ranciere, & Rogoff, K. S. (2009). Exchange Rate Volatility and Productivity Growth: The Role of Financial Development. Journal of Monetary Economics

Balaguer, J., & Cantavella-Jorda, M. (2002). Tourism as a Long-Run Economic Growth Factor: the Spanish Case. Applied economics, 34, 877-884.

Bergin, P. R., & Feenstra, R. C. (2001). Pricing-to-market, Staggered Contracts, and Real Exchange Rate Persistence. Journal of international Economics, 54, 333-359.

Bleaney, M. (2008). Openness and Real Exchange Rate Volatility: In Search of an Explanation. Open Economies Review.

Bleaney, M., & Greenaway, D. (2001). The Impact of Terms of Trade and Real Exchange Rate Volatility on Investment and Growth in Sub-Saharan Africa. Journal of development Economics, 65, 491-500.

Broda, C., & Romalis, J. (2011). Identifying the Relationship Between Trade and Exchange Rate Volatility. In Commodity Prices and Markets, 79-110. University of Chicago Press.

Calderón, C., & Kubota, M. (2018). Does Higher Openness Cause More Real Exchange Rate Volatility?. Journal of International Economics, 110, 176-204.

Çalışkan, U., Saltik, I. A., Ceylan, R., & Bahar, O. (2019). Panel Cointegration Analysis of Relationship between International Trade and Tourism: Case of Turkey and Silk Road Countries. Tourism Management Perspectives, 31, 361-369.

Dornbusch, R. (1976). Expectations and Exchange Rate Dynamics. Journal of Political Economy.

Grydaki, M., & Fountas, S. (2009). Exchange Rate Volatility and Output Volatility: A Theoretical Approach. Review of International Economics, 17, 552-569.

Hau, H. (2000). Exchange Rate Determination: The Role of Factor Price Rigidities and Nontradeables. Journal of International Economics.

Hau, H. (2002). Real Exchange Rate Volatility and Economic Openness: Theory and Evidence. Journal of Money, Credit, and Banking.

Khan, H., Toh, R. S., & Chua, L. (2005). Tourism and Trade: Cointegration and Granger Causality Tests. Journal of Travel Research, 44, 171-176.

Klau, M. (2006). The New BIS Effective Exchange Rate Indices 1. BIS Quaterly Review.

Kulendran, N., & Wilson, K. (2000). Is There a Relationship Between International Trade and International Travel?. Applied Economics, 32, 1001-1009.

Landefeld, J. S. (1987). International Trade in Services: Its Composition, Importance and Links to Merchandise Trade. Business Economics, 25-31.

Lundberg, D. E., Krishnamoorthy, M., & Stavenga, M. H. (1995). Tourism Economics. John Wiley and sons.

Mattoo, A., Rathindran, R., & Subramanian, A. (2001). Measuring Services Trade Liberalization and its Impact on Economic Growth: An Illustration (Vol. 2655). World Bank Publications.

McKinnon, R. I., Radcliffe, C., Tan, K. Y., Warga, A. D., & Willett, T. D. (1984). International Influences on the US economy: Summary of an Exchange. The American Economic Review, 74, 1132-1134.

Meese, R. A., & Rogoff, K. (1983). Empirical Exchange Rate Models of the Seventies. Do They Fit out of Sample?. Journal of International Economics.

Morana, C. (2009). On the Macroeconomic Causes of Exchange Rate Volatility. International Journal of Forecasting, 25, 328-350.

Obstfeld, M., & Rogoff, K. (1995). Exchange Rate Dynamics Redux. Journal of Political Economy.

Obstfeld, M., and Rogoff, K. (1996). Foundations of International Macroeconomics. The MIT Press.

Rogoff, K. (1999). Monetary Models of Dollar/Yen/Euro Nominal Exchange Rates: Dead or Undead? The Economic Journal, 109, F655-F659.

Salmani, B., Panahi, H., & Razzaghi, S. (2014). Assessing the Dynamic Economic Impact of Tourism for OIC Members. World Applied Sciences Journal, 32, 1098-1105.

Seetanah, B. (2011). Assessing the Dynamic Economic Impact of Tourism for Island Economies. Annals of Tourism Research, 38, 291-308.

Servén, L. (1998). Macroeconomic Uncertainty and Private Investment in Developing Countries: An Empirical Investigation. Available at SSRN 597249.

Taylor, Mark P. (1995) The Economics of Exchange Rates. Journal of Economic Literature.

Published
2021-06-30
How to Cite
Kacaribu, F., Sabrina, S., & Hasan, T. M. R. (2021). DOES THE SERVICE TRADE OPENNESS MITIGATE REAL EXCHANGE RATE VOLATILITY?. Buletin Ekonomi Moneter Dan Perbankan, 24(2), 237 - 254. https://doi.org/10.21098/bemp.v24i2.1168
Section
Articles