Exchange Rate Volatility and Trade Flows Before and After Crisis: The Case of Czech Republic

The objective of this paper is to examine the impact of exchange rate volatility of Czech koruna on some sectoral bilateral trade flows. Considering the dominant role of the EU as main trading partner of Czech Republic, this study focuses on the monthly sectoral exports of Czech Republic to EU 15 countries. The financial crisis and following events have led to a significant fluctuation of Czech currency, thus part of the analysis focuses on events before and after crisis using vector error-correction model technique for the period from January 1991 to June 2013, divided into two sub-periods. Results suggest no significant relationship between exchange rate volatility and sectoral exports in pre-crisis period or crisis and post-crisis period but show significant relationship between exports and foreign income.