IMPACT OF EXCHANGE RATE ON FOREIGN TRADE VOLUME

Abstract

This study examines the impact of exchange rates on foreign trade volume for seven well-developed European countries during the period of 2009–2019. To investigate the relationships, regression analyses were conducted using Ordinary Least Squares (OLS) and Autoregressive Distributed Lag (ARDL) methods with STATA-14 software. Empirical evidence from trade between the USA and Germany during 1965–1975 indicates that exchange rate uncertainty significantly impacts prices but does not have a notable effect on trade volume. Usually, logarithmic transformations are utilized to simplify statistical analysis, enhance interpretability, and mitigate potential problems. As international trade continues to grow, regulatory practices that might restrict trade are also increasing. One such obstacle is exchange rate volatility, which directly and indirectly affects trade activities. Exchange rate fluctuations can impact trade relations and a country’s trade balance. One finding of this study is that changes in monetary policy can significantly affect trade activities, particularly in the long-term perspective. Typically, the effect on exports appears promptly, while import levels respond over a longer duration. The research also analyzes the relationship with inflation.