The effects of exchange rate uncertainty on export and import volume in Albania

AuthorRozana Liko
PositionUniversity 'Ismail Qemali', Albania
Pages226-232
Vol. 2 No. 1
January, 2018
European Journal of Economics, Law and Social Sciences
IIPCCL Publishing, Graz-Austria
ISSN 2519-1284
Acces online at www.iipccl.org
226
The e ects of exchange rate uncertainty on export and import volume
in Albania
Rozana Liko
University “Ismail Qemali”, Albania
Abstract
We investigate the e ects of exchange rate uncertainty on export (import) in the context of a
vector auto regression model. We measure the uncertainty of exchange rate using the GARCH
model, more precisely the conditional standard deviation of the forecast error of exchange
rate. We use monthly data from January 2009 to June 2017. The results suggest that exchange
rate uncertainty have a negative insigni cant e ect on export and a positive signi cant e ect
on import.
Keywords: Exchange rate uncertainty, Export, Import, GARCH model, VAR model.
Introduction
The macroeconomic e ects of exchange rate uncertainty, especially on trade ows,
have received considerable a ention since and the adoption of oating exchange
rates. In recent years, substantial empirical evidences about the impact of exchange-
rate volatility on international trade were found in many previous studies (Holly,
1995; Arize, Osang, and Slo je, 2000; Cho, Sheldon, and McCorriston, 2002; A ab
and Aurangzeb, 2002; Arize, Malindretos, and Kasibhatla, 2003; Rahman and Serletis,
2009; Caporale, Ali and Spagnolo, 2015). Most of the literature on exchange rates and
exchange rate uncertainty has been specialized in the area of international nance or
international trade and on the e ects of uncertainty on export activity foreign direct
investment. To model uncertainty have been used di erent methods, but in the last
few years the GARCH model have got a lot of popularity. In most studies, exchange
rate uncertainty has had a negative impact on export activity and foreign direct
investment (Ruiz, 2005).
The present paper makes contribution to the existing literature by investigating the
e ect of exchange rate uncertainty on export and import using vector autoregression
methodology, VAR model. We use the conditional variance of a GARCH (1, 1) model
to measure the uncertainty of exchange rate. We estimate the model using monthly
data of nominal exchange rate of euro to Albanian Lekë, Albanian export and import.
The remainder of the paper is organized as follows. In Section 2 provides a description
of the econometric methodology used; Section 3 presents the data employed on
this study; Section 4 display empirical results and nally in Section 5 we get the
conclusions.

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