Impact of exchange rate uncertainty on commodity trade between US and Sweden

Abstract

Previous studies that investigated the effects of exchange rate uncertainty on the trade flows of Sweden employed aggregate trade data either between Sweden and the rest of the world or at bilateral level between Sweden and her major trading partners. In this article, we disaggregate the trade data and employ the import and export data from 87 industries that trade between Sweden and the US. We find that exchange rate volatility has significant short-run effects on the trade flows between the two countries in almost two-third of the industries. However, the short-run effects are translated into the long-run effects in one-third of the cases. Furthermore, the real depreciation of krona against the dollar was found to have favourable effects on the overall trade balance between the two countries.

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