On the asymmetric effects of exchange rate volatility on the U.S. Bilateral Trade with its 12 South American partners

The new direction on the link between a measure of exchange rate volatility on trade flows is to estimate nonlinear models to determine if trade flows respond to exchange rate volatility in an asymmetric manner. In this paper we consider the U.S. trade flows with 12 South American partners. Estimates of traditional trade models revealed that only U.S. exports to Paraguay and Venezuela and its imports from Peru responds adversely to exchange rate volatility in the long run. However, estimates of nonlinear models predicted that U.S. exports to Bolivia, Chile, Colombia, Paraguay, and Venezuela, and its imports from Argentina, Bolivia, Peru, Suriname, Uruguay, and Venezuela are affected asymmetrically. Clearly, the nonlinear approach yields relatively more significant outcomes than the linear approach and must be the norm for future research on the topic.