DOES EXCHANGE-RATE VOLATILITY IMPEDE THE VOLUME OF JAPAN BILATERAL TRADE

The purpose of this paper has been to examine the extent to which exch ange rate volatility impedes Japan's bilateral trade hows. In addition to exchange rate volatility, other factors that were posited to affec t trade flows include data on real economic activity, costs, and price s which feature in the theoretical framework. The empirical analysis d iffers from the majority of previous research by appropriately specify ing the models in terms of the order of integration of the data and in terms of the equation dynamics. The major finding of the paper is tha t exchange rate volatility is at least as likely to raise trade flows as it is to impede them. (C) 1998 Elsevier Science B.V.