Exchange Rate Volatility and Exports for Selected East Asian Countries: Evidence from Error Correction Model

This paper examines the relationship between exchange rate volatility and exports of the five selected East Asian economies. A measure of the quantitative proxy of the exchange rate risk is constructed, focusing on the role of moving-average in smoothing the persistence of the risk measure. Vector autoregressive (VAR) model, error correction modelling (ECM), and variance decomposition (VD) are applied to characterize the joint dynamics of variables in both the short and long run. The Johansen results indicate a stable long-run relation between exports and exchange rate. Results show that a great fluctuation of exchange rate volatility has significantly impacted the volume of exports for the economies concerned. To this end, the forecast error VD shows that the innovations of exchange rate volatility have minor impact on export patterns in the study.