Front Matter

Front Matter

Peter Clark, Shang-Jin Wei, Natalia Tamirisa, Azim Sadikov, and Li Zeng
Published Date:
September 2004
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© 2004 International Monetary Fund

Typesetting & Production: IMF Multimedia Services Division

Figures: Jorge Salazar

Cataloging-in-Publication Data

  • A New look at exchange rate volatility and trade flows / Peter B. Clark … [et al]. — Washington, D.C. : International Monetary Fund, 2004.
  • p. cm. – (Occasional paper); 235
  • Includes bibliographical references.
  • ISBN 1-58906-358-9

1. Foreign exchange rates. 2. International trade. I. Clark, Peter B. (Peter Barton), 1941- II. Occasional paper (International Monetary Fund); no. 235.

HG 3821.N38 2004

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This study examines the effect of exchange rate volatility on trade, and was prepared in response to a request to the IMF from the Director General of the World Trade Organization (WTO). The IMF produced a study in 1984 for the General Agreement on Tariffs and Trade (GATT) on this subject. Since then, there have been major developments in the world economy, some perhaps having exacerbated fluctuations in exchange rates whereas others likely having reduced the impact of volatility on trade. It is therefore appropriate to revisit the issue some 20 years later.

Overall, there is no robust evidence of a large negative effect of exchange rate volatility on trade. This suggests that, from the perspective of enhancing trade, exchange rate volatility is not likely to be a major policy concern. This does not rule out the possibility that a large exchange rate volatility could affect an economy through other channels.

This study was prepared by a team led by Peter B. Clark and Shang-Jin Wei and consisted of Natalia Tamirisa, Azim Sadikov (summer intern), and Li Zeng (research assistant). It has benefited from comments from Mary Amiti, Giovanni Dell’Ariccia, Raghuram Rajan, Stephen Tokarick, Management, and various departments of the IMF, as well as from Marc Auboin, Richard Eglin, and other staff of the WTO. Miklos Koren, Andrew Rose, Adam Szeidl, and Silvana Tenreyro generously shared their data. Marlene George, Celia Burns, and Laura Leon provided able assistance. Gail Berre of the External Relations Department edited the paper and coordinated the production of the publication. The views expressed are those of the authors and do not necessarily reflect the views of national authorities or IMF Executive Directors.

Raghuram G. Rajan

Economic Counsellor and Director

IMF Research Department

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