The Analysis On The Asymetric Effects Of Exchange Rate Fluctuation On Exports Of Major Eastern Asian Countries

This paper tests the hypothesis of asymmetric effects of exchange rate risk with a dynamic conditional correlation bivariate GARCH-M model. The asymmetry means that exchange rate risk(volatility) affects exports differently during apprecaitions and depreciations, which may reflect exporter's asymmetric risk perception and hedging behavior. Using bilateral exports from eight Asian countries to the US, the real exchange rate risk significantly affects exports for all countries, negative or positive, in periods of depreciation or appreciation.After testing the time-series properties of the variables and identifying the GARCH or ARCH effects of the exchange rates, the empirical results of our bivariate GARCH-M DCC model provide strong support for the asymmetry hypothesis. In each country, positive depreciation effects exist along with negative or positive exchange risk effects during depreciations or appreciations. These findings favor the asymmetric hedging hypothesis and help to resolve existing empirical ambiguity in the literature. Further analyses show that for five of the eight countries, the magnitude of the difference between the exchange rate risk effects on exports during depreciations and appreciations proves significant, either negative or positive. Exporters in different economies may possess different risk perceptions. The evidence supports the uncertainty of exchange rate policies designed to influence exports.