1.

5 An Overview of the Methodology

1.5.1 Pretesting (Variable’s Processes Identification)

A battery of unit root tests (ADF, PP, Elliott-Rothenberg-Stock -ERS-, Ng-

Perron (NP: DFGLS, MPT MSB, MZ, MZa, and PT), and Kwiatkowski-Phillips-

Schmidt-Shin -KPSS-) indicated that there is a mix of orders of integration in the

variables of the export demand equation for quarterly data while the monthly

variables were I(1) processes.

1.5.2 Unconditional exchange rate volatility does not cause exports.

The MWald tests are carried out following the TYDL procedure to test for

Granger non-causality in the context of a Vector Autoregressive (VAR) dynamic

system (the economic model) of exports, foreign income (GDP), relative prices

(Exchange rates vis-à-vis the USD), and own and third country currency exchange

rate volatilities (EUR/USD, JPY/USD). It was opted for TYDL instead of Johansen’s

(1991) procedure due to the mix of unit root in the VAR system. In total 84 models

are estimated and they differ according to country, series type (real or nominal), type

of unconditional volatility (M-STD and CV), exchange rates (own and third country),

and exports (agricultural and total) using quarterly data from 1973 to 2013. There are

different types of series used in previous studies, thus our models and test results

allow for a broader comparison.

The null hypotheses were tested separately for the national (own) vis-à-vis

USD currency exchange rate volatility, and for third country currency exchange rate

volatility (G-3: EUR/USD and/or JPY/USD).

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