Asymmetric effect of exchange rate volatility on India's cross‐border trade: Evidence from global financial crisis and multiple threshold nonlinear autoregressive distributed lag model. (17th August 2020)

• Record Type: Journal Article
• Authors: Hashmi, Shabir Mohsin; Chang, Bisharat Hussain; Shahbaz, Muhammad
• Is Part Of: Australian economic papers. Volume 60:Number 1(2021)
• Page Start: 64
• Page End: 97
• Publication Date: 2020-08-17
• Subjects: exchange rate volatility -- financial crisis -- India -- MTNARDL -- nonlinear ARDL; C32 -- C33 -- F14; Economics -- Periodicals; Australia -- Economic conditions -- Periodicals; 330
• DOI: 10.1111/1467-8454.12194
• Languages: English
• ISSNs: 0004-900X

Abstract

Abstract: This paper examines the asymmetric effect of exchange rate volatility on India's cross‐border trade with its major trading partners: Japan, Germany, the United States, and China. We extend previous studies in two ways. First, we examine whether global financial crisis changes the asymmetric effect of exchange rate volatility on India's cross‐border trade. Next, we divide exchange rate volatility into quintiles and examine the effect of each quintile on cross‐border trade by using the multiple threshold nonlinear autoregressive distributed lag (MTNARDL) model. Our findings from standard nonlinear ARDL (NARDL) indicate that the asymmetric relationship between exchange rate volatility and cross‐border trade changes as a result of global financial crisis. In addition, findings from MTNARDL indicate that in short‐run, exchange rate volatility symmetrically affects India's cross‐border trade with all sample countries whereas in long‐run it asymmetrically affects cross‐border trade. Overall, these findings are very important for policy implications and open a new dimension to exchange rate volatility and trade flows.