The impact of exchange rate uncertainty on output: Analysis via exports and foreign direct investment (Exchange rate, International trade, Foreign direct investment, International finance, Economic growth).

摘要

This dissertation studies the impact of real and nominal exchange rate uncertainty on output. It is hypothesized that exchange rate uncertainty effects manifest themselves through trade and investment. Specifically, it is presumed that exchange rate uncertainty effects on output are channeled via exports and foreign direct investment. Five alternate measures of exchange rate uncertainty are created and tested, both in real and nominal versions. Further, principal component analysis of measures was developed to form a composite index of real and nominal uncertainty. Gravity models are utilized to conduct analysis of the effects of exchange rate uncertainty on exports and foreign direct investment. The gravity model is designed to capture factors that are important in explaining bilateral export flows and foreign direct investment stock and hence is a useful tool in studying the impact of bilateral (as opposed to effective) exchange rate volatility. The sum of the fitted values of the bilateral export flows and foreign direct investment stock from the gravity model are used as instruments for total trade and foreign direct investment. The effects of total exports and foreign direct investment on output are tested in an augmented MRW model. All estimation is on panel data for the G-7 (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) for the 1975--1998 period.