Date

4-2009

Degree

Bachelor of Science in Economics

College

College of Economics and Management (CEM)

Adviser/Committee Chair

Niño Alejandro Q. Manalo

Abstract

The Philippine peso has been fluctuating over time and it affects the trade activity of the country through a number of uncertainties in profit and some adjustment costs to avoid losses. Thus, the study aimed to determine the effect of exchange rate volatility, both in the short run and the in long run, on Philippine exports and imports with its major trading partners, the United States and Japan. The regression results showed that in the short run, the exchange rate volatility was found to be statistically insignificant in all functions. Since firms take time time to change their production, a currency uncertainty does not mean firms will immediately transact less. For the long run analysis, on the other hand, the Johansen Cointegration test was employed. The exchange rate volatility exhibited long run effects in the two trading partners, significantly shrinking trade values with the U.S. The traders transact less due to the risk involved to their profits; increasing uncertainty in the currency would mean higher prices faced by the traders. Meanwhile, the trade functions with Japan were found to be positively affected by the exchange rate volatility. In this case, the exporters trade more when the uncertainty is high to increase current revenue and to avoid drastic losses in the future. In addition, Philippine importers increase their purchases to Japan in order to avoid further increase in the prices. Using the Vector Error Correction model, the study found out that the speed of adjustment of the exchange rate volatility to its long run equilibrium was relatively slower compared to the other variables in all trade functions. Moreover, the real exchange rate volatility does not Granger cause both the export and the import values of the U.S. and Japan which imply that there was a lack of evidence that the exchange rate volatility preceded the behavior of export and import values even if they have a long run relationship.

Language

English

Call Number

LG 993.5 2019 E2 M55

Document Type

Thesis

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