Exchange Uncertainty and Export Performance in Egypt: New Insights from Wavelet Decomposition and Optimal GARCH Model

Bouoiyour, Jamal and Selmi, Refk (2014): Exchange Uncertainty and Export Performance in Egypt: New Insights from Wavelet Decomposition and Optimal GARCH Model. Forthcoming in: Journal of International Trade and Economic Development

Abstract

To effectively assess the link between exchange rate uncertainty and exports performance in Egypt, this article relies on an optimal GARCH model among decomposed series on a scale-by-scale basis via wavelet approach. The observed outcomes reveal that the focal connection depends substantially on the frequency-to-frequency variation and slightly on the leverage effect. Indeed, the effect of exchange rate volatility on trade appears stronger at higher frequencies (i.e., the short-run). When subtracting energy’s share, the results change remarkably. Accurately, the studied relationship becomes more important at lower frequencies (i.e., the long-run). The first findings may be due to the fact that the energy market is mainly driven by a great speculation, coupled with the absence of efficient anti-cyclical fiscal policy and insufficient financial development. We attribute the second ones to the composition of trade partners, the choice of a reference basket’s currencies, the specialization in products with low technological content, the lack of innovative capacity and the weakness of institutions.

• Item Type: MPRA Paper
• Language: English
• Keywords: Exchange volatility; exports; wavelet decomposition; optimal GARCH model; Egypt.
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General; F - International Economics > F1 - Trade; F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade

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