Exchange rate volatility in international trade. An analysis of the impact on the Chilean fruit industry

The relationship between exchange rate uncertainty and international trade encouraged developing a research line where there are different approaches and in some cases inconclusive of what really happens. Therefore, the aim of this research was to analyze the impact of exchange rate volatility on exports and establish their impact on external demand and price relationships of Chilean fruit industry. The data used refers to the decade 2003-2013 on exports and exchange rate of the databases of the Central Bank of Chile. The volatility in the exchange rate was estimated by the generalized autoregressive conditional heteroscedastic model (GARCH) based on the ARCH (autoregressive conditional heteroscedasticity). The results showed that there was a positive relationship between the volatility of the exchange rate, external demand for exports according to a level of significance (P<0.01). This allowed inferring that exports and the price level showed an inverse relationship; meanwhile in external demand and the volatility of the exchange rate, the relationship was direct. For this reason Chilean exporters were affected by changes in the exchange rate, because of the absence of a formal financial capital market that would cover the transaction exposure, which is one of the reasons participants in the fruit market mostly traded locally and only a small part of producers made international trade.