Exchange Rate Uncertainty and Trade Growth - A Comparison of Linear and Nonlinear (Forecasting) Models

tively. National currency export and import price data are from the IMF database ”In-
ternational Financial Statistics” (IFS). Nominal FX rates (national currency per USD) are
retrieved from the IFS and are transformed into real FX rates using IFS wholesale price
indices. Base year for all indices is 1995.

Export figures of BE exclude those of Luxembourg. A few observations of GC’s sector 9
exports are interpolated using Tramoseats as implemented in EViews 4.1. Furthermore, GC
sectoral import data are contained in the 2001 issue of the ”Monthly Statistic of International
Trade” database until December 1997 only.

We use export price indices (IFS line 76) for FI, GE, GC, JP, SW, and the US. For CA,
IR, IT, NL, SP, and UK export prices (IFS line 74) are used. Export price series covering our
full sample period are unavailable for AT, BE, and NO. Alternatively, we prefer wholesale
price indices (IFS line 63) to consumer price indices. In the case of PT, no wholesale price
series is available covering our full sample period and we refer to consumer prices (all items,
IFS line 64) instead. Export prices for FR are retrieved from Datastream.

For AT, BE, CA, CH, FI, GE, GC, IR, IT, JP, NL, SP, SW, UK, and the US we use
import prices (IFS line 75, for AT line 63, for CH line 76) to deflate nominal imports. For
NO we employ the consumer price index of imported goods of the OECD ”Main Economic
Indicators” database. For PT no import price series is available such that we substitute it
by the consumer price index (all items). The import price index for FR is retrieved from
Datastream. Moreover, for FR a consistent wholesale price series is not available. Therefore
we use the consumer price index (all items, Datastream) to convert nominal into real FX
rates in this case.

Industrial production data for Germany refer to Western Germany until reunification
and thereafter to the reunified Germany. Industrial Production data for Mexico is from the
IFS database. Quarterly industrial production of Switzerland is from the IFS database and
interpolated to the monthly frequency using EViews 4.1 (linear-match-last method).

References

1. Artus, J. R., ‘Toward a more orderly exchange rate system’, Finance and Development,
20, 10-13 (1983).

2. Brodsky, D. A., ‘Fixed versus flexible exchange rates and the measurement of exchange
rate instability’, Journal of International Economics, 16, 295-306 (1984).

3. Gotur, P., ‘Effects of exchange rate volatility on trade: some further evidence’, IMF
Staff Papers, 32, (1985).

4. Demers, M., ‘Investment under uncertainty, irreversibility and the arrival of information
over time’, Review of Economic Studies, 58, 333-350 (1991).

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