The Impact of Exchange Rate Development on Czech Trade Flows

The aim of the paper is to investigate the impact of exchange rate development on bilateral trade flows between Czech Republic and its major trading partners. This paper explores J-curve pattern and relationship between exchange rate volatility and trade flows using quarterly data over the period 1997 – 2012. We employ a Johansen cointegration test to analyze the long run relationship. Short term effects are explored by estimating an error correction model and by assessing impulse-response functions. We reveal J-curve for trade with France and an inverse J-curve for Slovakia and United Kingdom. Volatility has no clear impact on trade flows.