Krishna M. Kasibhatla

Does exchange-rate volatility depress export flows: The case of LDCs

In the area of international trade, few studies have examined whether increases in exchange-rate volatility depress trade flows of LDCs. The aim of this paper is to investigate empirically the impact of exchange-rate volatility on the export flows of 10 developing countries over the quarterly period 1973–98. The econometric analysis exploits the theory of cointegration, given the obvious nonstationarity of the data. Estimates of the cointegrating relations are obtained using Johansens multivariate procedure. Evidence of stability of the cointegrating space is examined using Hansens [1992a] tests. Short-run dynamic modelling is accomplished using the error-correction technique, and the stability test results are obtained using Hansen [1992b] tests. In conformity with theoretical considerations, the results indicate that increases in the exchange-rate volatility exert a significant negative effect upon export demand in both the short-run and the long-run in most of the countries studied. These effects may result in significant reallocation of resources by market participants.

Are Daily Stock Price Indices in the Major European Equity Markets Cointegrated? Tests and Evidence

This study investigates short-run and long-run linkages among major West European equity markets in London (FTSE100), Frankfurt (DAX30), and Paris (CAC40). Long-run market co-movements of the three price indices are detected employing cointegration and vector error correction methodology. Empirical results of this study support the presence of one cointegrating vector and two common trends. CAC index is found to be weakly exogenous. The short-run dynamics indicate short-run causal links running both ways between FTSE and DAX.