EXCHANGE RATE VOLATILITY AND HUNGARIAN FOREIGN TRADE

The aim of the paper is to analyse the impact of exchange rate volatility on trade flows between Hungary and its major trading partners. For this purpose is employed extended trade gravity model approach. The model includes variables of GDP and population, distance between them, dummies for common border; membership in EU and proxy for exchange rate volatility. The volatility is estimated by standard deviation. The estimation is based on quarterly data over the period 1997:1 - 2012:2. In order to obtain the objective result is used the panel data regression with 11 trading partners. Based on a gravity model, results suggest that nominal exchange rate volatility of Hungarian forint has a significant negative effect on bilateral trade over the sample period.