Impact of exchange-rate variability on commodity trade between U.S. and Germany

Previous studies that looked at the impact of exchange rate volatility on trade flows used aggregate trade data between one country and rest of the world or between two countries. More recent studies, however, have expanded the literature by using highly disaggregated commodity level data between two countries. In this paper we consider the sensitivity of 131 industries that trade between the USA and Germany. We find that exports and imports of a majority of the industries react to the real dollar-euro volatility in the short run. The short-run effects, however, last into the long run only in almost 50 percent of the industries. Among these industries, while almost all US exporting industries are affected favourably by exchange rate volatility, a majority of the US importing industries are affected adversely.