Real & nominal foreign exchange volatility effects on exports – the importance of timing

This paper compares real and nominal foreign exchange
volatility effects on exports. Using a flexible lag version of the
Goldstein-Khan two-country imperfect substitutes model for
bilateral trade, we identify the overall effect into both a timing
as well as a size impact. We find that the size impact of
forecasted foreign exchange volatility does not vary according
to the measure used in terms of magnitude and direction.
However, there are very different timing effects, when we
compare real and nominal foreign exchange rate volatility.