Exchange Rate Uncertainty and Trade between the United States and Canada: Evidence from 152 Industries.

In this article we try to assess the impact of exchange rate uncertainty on trade flows between the United States and Canada. However, unlike previous research on the two countries, we use disaggregated trade data for 152 industries. By using the bounds testing cointegration approach, which distinguishes short-run effects from long-run effects, we find that in the short run, trade flows of almost two-thirds of the industries are affected by exchange rate uncertainty. However, in the long-run, less than one-third of the trade flows are affected. Almost all industries that are affected by exchange rate uncertainty are found to be small, except for road motor vehicles - which makes up 20 per cent of both imports and exports. Exports and imports of this largest industry are adversely affected by exchange rate uncertainty. [ABSTRACT FROM AUTHOR]