Exchange rate volatility and trade flows

After the collapse of Bretton-Woods System in 1973, many countries adopted the floating exchange rate regime. This situation led to fluctation and uncertainties in the exchange rates. There are number of studies that analyse the effect of exchange rate volatility on trade flows both theoretically and empirically. But previous studies can not obtain results about sectoral base due to the lack of disaggregated data sets. This study investigates the effects of exchange rate volatility on trade flows in Turkey. Fort his purpose using yearly data covers the period 2002-2013, the exchange rate volatility is estimated with GARCH model. Then, exports to 15 European Union countries and imports from the same European Union countries are investigated, using Standard International Trade Statistic Revision 3 at the second level, by panel methodology. According to the test results, export sectors are negatively affected from exchange rate volatility; import sectors are both positively and negatively affected from exchange rate volatlity. Keywords: Exchange rate volatility, trade flows, panel data analysis.