Exchange rate volatility and India-US commodity trade: evidence of the third country effect.

The relationship between trade flows and exchange rate uncertainty is still being debated in academic circles while examining the effects of exchange rate uncertainty on India's bilateral trade flows, prior research disregard the "third-county" effect. This study investigates the effect of third-country risk on the amount of India-US commodity trade using time series data for 79 Indian commodity export and 81 Indian commodity import businesses. The results show that the volume of trade in a select few industries is considerably impacted by third-country risk in terms of dollar/yen and rupee/yen. According to the findings, rupee-dollar volatility affects 15 exporting industries in the short run and 9 industries in the long run. Similarly, the third country effect demonstrates that Rupee-Yen volatility affects 9 Indian exporting industries both in the short and long run. The results show that rupee-dollar volatility tends to have a short-term impact on 25 importing industries and a long-term impact on 15 sectors. Similar to this, the third country effect demonstrates that Rupee-Yen volatility tends to have an impact on 9 Indian importing industries over the short and long term.

Global evidence of the COVID-19 shock on real equity prices and real exchange rates: A counterfactual analysis with a threshold-augmented GVAR model.

In this study, we offer a global perspective on the impacts of the COVID-19 pandemic on financial markets using a multi-country Threshold-Augmented Global Vector Autoregressive Model of Chudik et al. (2020). We document a negative impact of the pandemic on real equity prices across countries (except the United States) and country groupings with the highest negative impact recorded in 2020Q2. The biggest losers are the emerging economies while the biggest gainers are the United States whose real stock prices remain positive and the Euro Area that achieved real exchange rate appreciation when the financial markets were mostly vulnerable. Our results support the effectiveness of the quantitative easing policy regime in the Euro Area during the COVID-19 pandemic and also suggest hedging role for the US stocks among other suggested safe assets.