UK imports, third country effect and the global financial crisis

Evidence from the asymmetric ARDL method

Taufiq Choudhry, Syed Shabi UI Hassan, Fotios I. Papadimitriou

Research output: Contribution to journalArticle

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Abstract

This paper examines the role of exchange rate volatility in determining real imports. As a robustness check, it further explores the impact of the recent global financial crisis which is a period characterized by heightened exchange rate volatility. More specifically, we investigate the impact of exchange rate volatility on UK real imports from Germany, Japan and the US during the period January 1991–March 2013. In contrast to most studies which focus on bilateral trade, we additionally explore the third country exchange rate volatility effect on UK imports. To capture the nonlinear features which often characterize macroeconomic data, we employ the asymmetric autoregressive distributed lag (ARDL) approach to cointegration. Our results suggest that exchange rate volatility plays an important role and reveal that there is a significant effect of the recent financial crisis on UK imports. This finding is consistent when we test for the third country volatility effect. Finally, we find that there is a significant causal relationship between exchange rate volatility and UK imports both in bilateral tests and in tests which account for the third country exchange rate volatility.
Original languageEnglish
Pages (from-to)199-208
Number of pages10
JournalInternational Review of Financial Analysis
Volume32
Early online date3 Feb 2014
DOIs
Publication statusPublished - Mar 2014

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Import
Global financial crisis
Country effects
Exchange rate volatility
Distributed lag
Japan
Bilateral trade
Cointegration
Financial crisis
Macroeconomics
Bilateral
Robustness
Germany

Keywords

  • Real imports
  • Exchange rate volatility
  • Asymmetric cointegration
  • Financial crisis

Cite this

UK imports, third country effect and the global financial crisis : Evidence from the asymmetric ARDL method. / Choudhry, Taufiq; Hassan, Syed Shabi UI ; Papadimitriou, Fotios I.

In: International Review of Financial Analysis, Vol. 32, 03.2014, p. 199-208.

Research output: Contribution to journalArticle

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