Original scientific paper
The effects of exchange rate volatility on international trade fl ows: evidence from panel data analysis and fuzzy approach
Elif Nuroglu
; Faculty of Business and Administration, International University of Sarajevo, Sarajevo, Bosnia and Herzegovina
Robert M. Kunst
orcid.org/0000-0001-6831-2471
; Department of Economics, University of Vienna, Vienna, Austrija
Abstract
The aim of this paper is to analyze the effects of exchange rate volatility on international trade fl ows by using two different approaches, the panel data analysis and fuzzy logic, and to compare the results. To a panel with the crosssection dimension of 91 pairs of EU15 countries and with time ranging from 1964 to 2003, an extended gravity model of trade is applied in order to determine the
effects of exchange rate volatility on bilateral trade fl ows of EU15 countries. The estimated impact is clearly negative, which indicates that exchange rate volatility has a negative infl uence on bilateral trade fl ows. Then, this traditional panel approach is contrasted with an alternative investigation based on fuzzy logic. The key elements of the fuzzy approach are to set fuzzy decision rules and to assign
membership functions to the fuzzy sets intuitively based on experience. Both approaches yield very similar results and fuzzy approach is recommended to be used as a complement to statistical methods.
Keywords
Linguistic modeling; fuzzy relations; exchange rate volatility; bilateral trade; gravity model
Hrčak ID:
83349
URI
Publication date:
19.6.2012.
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