A New Approach for Measuring Volatility of the Exchange rate

This paper examines the effect of exchange rate volatility for a set of three European countries, Germany, Sweden and the U.K., to sectoral exports during the period of 1973 q1-2010 q4. It is often claimed by some researchers that exchange rate volatility causes a reduction in the overall level of trade. Empirical researchers often utilize the standard deviation of the moving average of the logarithm of the exchange rate as a measure of exchange rate fluctuation. In this study we propose a new measure for volatility. Overall our results have suggested significant negative effects from volatility to exports.