Summary
The purpose of this paper is to find empirical evidence for the interaction between volatility and international transactions in real and financial assets for the Netherlands. The main finding is that this influence depends on the volatility measure chosen. Dutch foreign trade is hampered by short-term exchange rate volatility, reflecting uncertainty due to payment lags. Direct investment for the Netherlands, inward as well as outward, is stimulated by long-term exchange rate volatility, revealing the dominance of production diversification incentives. On the Dutch bond market, short-term exchange rate volatility deters investors leading to repatriation of capital and higher bond volatility. Stock market volatility increases slightly with increasing long-term exchange rate volatility, probably because the exchange rate affects profitability. Our preliminary results suggest that there are no strong arguments in favour of international capital restrictions to reduce volatility.
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© 1996 Kluwer Academic Publishers
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Stokman, A.C.J., Vlaar, P.J.G. (1996). Volatility, International Trade and Capital Flows. In: Bruni, F., Fair, D.E., O’Brien, R. (eds) Risk Management in Volatile Financial Markets. Financial and Monetary Policy Studies, vol 32. Springer, Boston, MA. https://doi.org/10.1007/978-1-4613-1271-0_7
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DOI: https://doi.org/10.1007/978-1-4613-1271-0_7
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