Does exchange rate volatility impede the volume of Japan's bilateral trade?

The purpose of this paper has been to examine the extent to which exchange rate volatility impedes Japan's bilateral trade flows. In addition to exchange rate volatility, other factors that were posited to affect trade flows include data on real economic activity, costs, and prices which feature in the theoretical framework. The empirical analysis differs from the majority of previous research by appropriately specifying the models in terms of the order of integration of the data and in terms of the equation dynamics. The major finding of the paper is that exchange rate volatility is at least as likely to raise trade flows as it is to impede them.