ABSTRACT

The leaders of the leading emerging economies Brazil, Russia, India, China,

and South Africa (BRICS) claim that increased currency exchange rate volatility

(CERV) from USD, EUR, and JPY (G-3) negatively impacts their exports, and

expressed their desire for less trade dependence on these currencies. The literature on

the impact of CERV on trade is vast. However, no consensus on the impact’s

direction and significance has been reached yet. The motivation of this study was:

first, to contribute to the existing empirical literature by using an alternative

methodology; and second, to provide empirical evidence to the claim’s validity or

nullity by focusing on the case of BRICS, Turkey and Honduras. To this end, two

general null hypotheses (objectives) were tested: 1) Unconditional (constant) CERV

does not Granger cause exports, and 2) Conditional (stochastic) CERV does not

impact exports.

To achieve the first objective, an export demand model was specified as a

VAR dynamic system of exports, World GDP, relative prices, and own or third

CERV. Quarterly time-series from 1973 to 2013 were used. Using a battery of unit

root tests, including the latest developments, different orders of integration were

identified. Therefore, to test this hypothesis it was opted for the Toda Yamamoto, and

Dolado and Lütkepohl procedure. It consists in estimating an augmented VAR and

test for Granger non-causality using MWald tests. In total 84 models were estimated.

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