The Real Effective Exchange Rate Volatility On International Trade In Case Of Ethiopia Export-import Values Perspective

This study aimed to empirically investigate the volatility of real effective exchange rate (REER)rnon international trade performance in Ethiopia by using annual time series data from 1981 up torn2019. The Vector Error Correction Model (VECM) has been employed to capture both the shortrnrun and long run relationships among the variables and the findings show that there arernsignificant relationships between REER and export value as well as between REER and importrnvalue. The Granger causality test have been checked to examine the causal effect of one variablernon other variables; basing on the test results it is evidenced that real effective exchange rate andrnimport value hold a bi-directional causality on one another while real effective exchange raternand export value hold a uni-directional causality i.e. real effective exchange rate influencesrnexport value from one side. The data collected has been analyzed by using Eviews Software 10.rnThe result of the findings indicated that a unit change in real effective exchange rate will lead torndecrease in import and export trade of the country. Therefore, policy makers are required tornfocus on alternative policy measures to boost export earnings of the country rather than relyingrnon the domestic currency depreciation.

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