Impact of exchange rate uncertainty on commodity trade between the us and Australia

Abstract

Exchange rate volatility is said to have negative or positive effect on trade flows. Previous studies that considered the impact of exchange rate uncertainty on the trade flows of Australia employed trade data either between Australia and rest of the world or between Australia and her few major trading partners. They were unable to discover any significant impact. In this paper when we disaggregate trade data by commodity between Australia and one of her major trading partners, the US, we find exchange rate volatility to have short-run effects on trade flows of most industries. However, the short-run effects last into long run, only in limited cases, though more in export commodities than import ones. © 2008 The Author Journal compilation © 2008 Blackwell Publishing Ltd.