The Effects of Exchange Rate Volatility on U.S. Imports: An Empirical Investigation

In this paper we obtain and interpret new estimates of the short- and long-run influence of exchange-rate volatility (or risk) on the import flows of the United States, in the generalized floating exchange-rate period. The major finding is that there is a significant long-run negative effect of exchange-rate volatility on the volume of imports, as well as, a significant short-run negative effect. Therefore, it can be argued that exchange-rate volatility will have significant effects on the allocation of resources by market participants and that policy-makers can no longer rely on an import demand with only conventional variables for long-term international trade planning, forecasting and policy formulation. [F14, F31]