(10) and then prune down based on the minimum AICc statistical criterion which has

demonstrated to perform well in small samples (Pujula, (2013)). MA lags were not

considered. Model specification inspection relies on Jarque-Berra test for non-

normality of the residuals, and Portmanteau test for serial correlation, which is not too

restrictive as any remaining serial correlation is fixed by adding more k=AR lags.

The variables used in this first VAR(k) model are in log-levels in a quarterly

frequency starting in quarter one, 1973. Though some countries like Russia, China,

and Honduras have less data points, we strived to include most of the information

available. More specifically, for every country two main models are estimated, the

own currency volatility vis-à-vis the USD as in equation 3.25, and the G-3 currency

volatility as in equation 3.26.

Tables 4-4 and 4-5 columns 9 and 10 show the resulting lag length and the

minimum AICc associated to that chosen model. With the exception of Indian and

Russian exports, most optimal lag lengths are of order five. Column labeled “TDYL

Var(p)” is the lag length of the second VAR(p) model that is estimated to test for

Granger non-causality of exchange rate volatility on exports, where p is the sum of

dmax + k (from VAR(k)). Due to space limitations, we first include the granger non-

causality tests results. Then present the parameter estimates of the VAR(p) models in

which the null hypothesis are rejected. The interpretation of the parameter estimates

from these models is not straight forward, instead they are used to give an idea of the

direction of impact of volatility on exports, and hence, they are complementary to

Granger non-causality tests.

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