Effects of exchange rate volatility on export volume and prices of forest products

The relative value of currencies varies considerably over time. These fluctuations bring uncertainty to international traders. As a result, the volatility in exchange rate movements may influence the volume and the price of traded commodities. The volatility of exchange rates was measured by the variance of residuals in a GARCH(1,1) model of the exchange rate. We estimated the effect of this exchange rate volatility on export quantity and price with autoregressive distributed lag models based on monthly data of US exports and prices to 14 countries for eight commodity groups. The most general and statistically significant results were obtained by pooling the time series data across destination countries and products. They suggested that an increase in exchange rate variability of 1% led to a short-run decrease in export quantity of 0.3%–0.4% and to a short-run decrease in export price of 0.1%. Both the quantity and the price effect faded away over time. The effects were less systematic and statistically significant for specific export destinations or individual products. Thus, in contrast with exchange rate level, exchange rate volatility may not be a major policy issue for US forest product exports.