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Empirica

, Volume 45, Issue 3, pp 425–455 | Cite as

Malaysia-EU trade at the industry level: Is there an asymmetric response to exchange rate volatility?

  • Mohsen Bahmani-Oskooee
  • Muhammad Aftab
Original Paper
  • 129 Downloads

Abstract

Aftab et al. (Empirica 43:461–485, 2016) in this journal assessed the impact of exchange rate volatility on Malaysia-EU trade at commodity level using the linear ARDL approach of Pesaran et al. (J Appl Econom 16:289–326, 2001) and did not find significant effects in most of the 81 Malaysian exporting and 66 importing industries. In this paper, we argue for asymmetric effects of exchange rate volatility on the same industries’ trades which implies using Shin et al.’s (Festschrift in Honor of Peter Schmidt, Springer, New York, 2014) nonlinear ARDL approach. While we find short-run asymmetric effects of volatility in almost all industries, we find evidence of adjustment asymmetry in 17 exporting and nine importing industries. We also find significant impact or short-run cumulative asymmetry in 12 exporting and six importing industries. The most important finding is significant long-run asymmetric effects in 36 Malaysian exporting industries and 25 Malaysian importing industries. Clearly, trade flows react to an increased exchange rate volatility differently than to a decreased volatility.

Keywords

Exchange rate volatility Asymmetry effects Commodity trade Malaysia US Nonlinear ARDL 

JEL Classification

F31 

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Copyright information

© Springer Science+Business Media New York 2017

Authors and Affiliations

  1. 1.The Center for Research on International Economics and Department of EconomicsUniversity of Wisconsin-MilwaukeeMilwaukeeUSA
  2. 2.Department of Finance and BankingUniversity of MalayaKuala LumpurMalaysia

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