ISSUES ON EXCHANGE RATE VOLATILITY & EXPORTS NEXUS – “A CASE FOR ASEAN”

Abstract

This paper investigates the relationship between exchange rate volatility and exports during the recovery regime in ASEAN. By adopting an augmented model proposed by Baak (2007), this study successfully documented the significant result for ASEAN case. Estimates of the cointegration relations are obtained using method propose by Johansen and Juselius (1990) techniques. Furthermore, the short-run and the long run dynamic relationships between the variables are obtained for each country utilizing the error correction modelling. The major results show that increases in the volatility of the real bilateral exchange rate, approximating exchange rate risk, exert significant effects upon export demand in the short run in each of the ASEAN countries. Moreover, the findings are found to be significantly negative effects to Singapore and Philippines. The results further suggest for the mixed effects from the bilateral exchange rate volatility to exports flow to Malaysia and Thailand, throughout the regression estimations. However, the volatilityexports demand from Indonesia to the United States nexus is found to be positive.