Paper title: Estimating the Exchange Rate Volatility and its Impact on International Trade Flow: Evidence from Bangladesh
Abstract: This study investigates the impact of exchange rate volatility on Bangladeshi export and import flows using an Autoregressive Distributed Lag (ARDL) bounds testing approach. The study period is from 2012 to 2022 using monthly data. The study has considered the real exchange rate, level of economic activity (GDP) for major Bangladeshi trading partners, and real exchange rate volatility as key determinants of Bangladeshi export level. Again, for determining the factors of Bangladeshi import level, the level of Bangladeshi economic activity (GDP), real exchange rate, and real exchange rate volatility are considered to be the explanatory variables. The findings reveal a statistically significant negative impact of exchange rate volatility on Bangladeshi exports, confirming theoretical predictions of increased uncertainty discouraging exporters. Additionally, the level of economic activity in major importing countries and the real exchange rate significantly influence export levels. However, import flows are primarily driven by the real exchange rate, with no significant impact observed from exchange rate volatility. Model diagnostics indicate potential instability in short-run coefficients for both models, warranting further investigation. These results offer valuable insights for policymakers, such as managing exchange rate volatility and promoting economic growth in key trading partners can bolster Bangladeshi exports. Additionally, focusing on domestic policies that stimulate import demand might be more effective than addressing volatility for managing overall trade flows. This research paves the way for further exploration of the complex relationship between exchange rate volatility and trade flows in Bangladesh, informing the development of effective strategies for sustainable trade expansion. Keywords: Exchange Rate, Trade Flows, Volatility, Autoregressive Distributive Lag (ARDL). DOI: https://www.doi.org/10.61607/JFB.V20N1-2.A2 Article Info: Submission Date: May 08, 2023; Acceptance Date: December 21, 2023.
