The Effects of Exchange Rate Volatility on U.S.-Chilean Industry Trade Flows

The effects of exchange-rate volatility on trade, while often assumed to be detrimental, are actually ambiguous. Numerous theoretical and empirical studies have found positive as well as negative effects. Analyses of disaggregated trade flows in particular have found many individual industries to register no effect at all. As a result, specific industries and specific country pairs must be examined on a case-by-case basis. This study examines U.S.-Chilean trade for 113 export and 23 import industries using annual data from 1971 to 2010. While aggregate trade shows little impact, industry-level effects are stronger. Half of the U.S. export industries in SITC sector 8 (Miscellaneous Manufactured Articles) respond negatively, suggesting that Chilean imports of type of product would increase as the result of a more stable peso.