Objective:

To investigate the main impacts of the bilateral exchange rate (er) volatility on Colombian exports for its main trade partners for the period 2001-2019, with the use of control variables in addition to ER volatility measure, such as countries’ GDP, distance, and dummy variables for contiguity and common language.

Methodology:

Pooled OLS, Fixed and Random Effects Panel models, and Poisson Pseudo Maximum Likelihood model.

Results:

The results showed that ER volatility is harmful to the commercial relationship between Colombia and its trading partners. An increase of 1 % in the long term exchange rate volatility can reduce Colombian exports by 0.25-0.4%. Results also suggest that past information is particularly relevant in order to assess the impact of exchange rate volatility on trade. As expected, exporter and importer incomes can increase trade, and distance can reduce trade.

Limitations:

Sectoral data used can be better explored. Originality: For the first time this methodology and data analysis is used to investigate the impact of ER volatility on Colombian trade.

Conclusions:

Results add another empirical evidence to the literature of exchange rate and trade, where economic policies that aim to stabilize the exchange rate are likely to increase the volume of trade for Colombia and its trade partners.

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