1989; Koray and Lastrapes 1989; Arize 1995, 1996,1997,1998; and De Vita and

Abbott (2004b)). On the other hand, there are researchers that employ conditional

volatility in the form of different generalizations of the simple ARCH model (e.g.,

Pozo (1992), Kroner and Lastrapes (1993), Caporale and Doroodean (1994), Qian and

Varangis (1994), McKenzie and Brooks (1997), McKenzie (1998), Arize and Ghosh

(1994), Arize and Malindretos (1998), Arize et al., (2005), Chou (2000), Cushman

(1983), De Vita and Abbott (2004a), Doroodian (1999), Doyle (2001), Grobar (1993),

Pujula (2013), and Grier and Smallwood (2013)).

A pioneer paper in the empirical literature is that of Hooper and Kohlhagen

(1978). The authors looked at the effect of USD vis-à-vis Deutsch-Mark (DM)

fluctuations on the trade between the US, Germany, France, the UK, Japan, and

Canada. They estimated a system of equations that includes export supply and import

demand functions. The volatility was measured using the average absolute deviation.

They disassociated the impact of exchange rate uncertainty on importers from the one

on exporters. Depending on who is bearing the risk (i.e. importers or exporters), the

effect on the price of traded goods will be positive (exporters) or negative (importers).

Their results do not support any significant relationship between the exchange rate

volatility and the volume of trade.

Bailey et al. (1987) assessed the effect of exchange rate volatility on export

growth for eleven OECD countries, using quarterly data that covered the pre- and

post-Bretton Woods collapse (1962-1974 and 1975-1985). They estimated a linear

regression of exports (in volume) on a measure of economic growth in trading partner

countries, a measure of export prices relative to those of trading partner countries,

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