The impact of exchange rate volatility on commodity trade between the United States and Spain

In this paper we analyze the effects of the real exchange rate volatility on disaggregated sectoral data on the trade flows between the United States and Spain. This study uses monthly trade flows on United States exports to and imports from Spain over the period from January 1993 to December 2012 and the method of bounds testing or the Autoregressive Distributed Lag (ARDL) approach to cointegration analysis. Our results reveal that exports depend positively on the levels of foreign economic activity but negatively on relative prices. However, the exchange rate volatility tends to provide mixed effects. In addition, imports depend positively on the levels of domestic economic activity but negatively on relative prices. As in the case of exports, the exchange rate volatility tends to provide mixed effects. Furthermore, in the case of both exports and imports, the effects of exchange volatility are found to yield mixed effects in the shortrun and in the long-run.