Bilateral Trade and Exchange Rate Volatility: Evidence from a Multiple-Threshold Nonlinear ARDL Model

This study applies a multiple threshold nonlinear autoregressive distributed lag (MTNARDL) model to examine the asymmetric impact of real exchange rate volatility on Vietnam’s exports and imports with its three leading trading partners: China, the United States, and South Korea. By allowing trade responses to vary across different volatility regimes, the MTNARDL framework provides a flexible approach to capturing potential nonlinear adjustment dynamics that cannot be addressed by single-threshold models. Moreover, using bilateral import and export data helps reduce aggregation bias. The results indicate the presence of asymmetric long-run adjustment dynamics in the relationship between real exchange rate volatility and bilateral trade flows, while short-run effects are generally weak and less consistent across trading partners. These findings provide valuable insights into the complex effects of exchange rate volatility, enabling policymakers to more effectively design and manage policies to mitigate its impact.