- 1
- Akhtar, M. A., Hilton, R. S., 1984. Exchange rate uncertainty and international trade: Some conceptual issues and new estimates from Germany and the U.S.. Federal

Total in-text references: 1- In-text reference with the coordinate start=5007
- Prefix
- of flexible exchange rates, neither importers nor exporters have perfect information regarding the behavior of future exchange rates, since those rates are subjected to a number of shocks. However, making use of all 2 Negative effects of exchange rate uncertainty on trade flows are reported by
- Exact
- Cushman (1983, 1986, 1988), Akhtar and Hilton (1984), Thursby and Thursby (1987), Kenen and Rodrik (1986), and Peree and Steinherr (1989),
- Suffix
- among others, while Hooper and Kohlhagen (1978), Gotur (1985), Koray and Lastrapes (1989), and Gagnon (1993) find insignificant effects. Kroner and Lastrapes (1993), using a multivariate GARCH-in-mean model, report that the reduced-form effects of volatility on export volume and prices vary widely.

- In-text reference with the coordinate start=5007
- 3
- Baron, D. P., 1976. Fluctuating exchange rates and the pricing of exports. Economic Inquiry 14 (3), 425-438.

Total in-text references: 1- In-text reference with the coordinate start=1902
- Prefix
- This volatility has often been cited by the proponents of managed or fixed exchange rates as detrimental, since in their view exchange rate uncertainty will inevitably depress the volume of international trade by increasing the riskiness of trading activity.1 Several theoretical studies (e.g.
- Exact
- Ethier (1973), Clark (1973), Baron (1976), Cushman (1986), Peree and Steinherr (1989))
- Suffix
- have shown that an increase in exchange rate volatility will have adverse effects on the volume of international trade. Other theoretical studies have demonstrated that increased volatility can have ambiguous or positive effects on trade volume: for instance, Viaene and de Vries (1992), who explicitly model the forward market, and Franke (1991)

- In-text reference with the coordinate start=1902
- 4
- Cheung, Y., Chinn, M., 1999. Macroeconomic implications of the beliefs and behavior of foreign exchange traders. Working Paper, Department of Economics, University of California at Santa Cruz.

Total in-text references: 1- In-text reference with the coordinate start=12729
- Prefix
- Monetary policy has a significant impact on the behavior of these fundamental factors. 8 Although it is possible to introduce high-frequency, mean-reverting components in modeling η t, doing so would complicate the analysis without affecting any of the subsequent results. 9
- Exact
- Taylor and Allen (1992) and Cheung and Chinn (1999)
- Suffix
- report that foreign exchange dealers rely on technical analysis to form short-term exchange rate predictions, which tend to be self-fulfilling. underlying economic fundamentals. We assume that the νt and tη processes are independent.

- In-text reference with the coordinate start=12729
- 5
- Chinn, M. D., Meese, R. A., 1995. Banking on currency forecasts: How predictable is change in money? Journal of International Economics 38 (1-2), 161-178.

Total in-text references: 1- In-text reference with the coordinate start=13689
- Prefix
- It is also broadly consistent with the permanenttransitory component decomposition drawn from Mussa's (1982) stochastic generalization of the Dornbusch (1976) exchange-rate overshooting model. Empirically,
- Exact
- Mark (1995), Chinn and Meese (1995), and Mark and Sul (1999)
- Suffix
- show that long-horizon exchange rate movements are determined by economic fundamentals such as relative money stocks and relative real incomes: stochastic processes that are quite persistent.

- In-text reference with the coordinate start=13689
- 6
- Clark, P. B., 1973. Uncertainty, exchange risk, and the level of international trade.

Total in-text references: 1- In-text reference with the coordinate start=1902
- Prefix
- This volatility has often been cited by the proponents of managed or fixed exchange rates as detrimental, since in their view exchange rate uncertainty will inevitably depress the volume of international trade by increasing the riskiness of trading activity.1 Several theoretical studies (e.g.
- Exact
- Ethier (1973), Clark (1973), Baron (1976), Cushman (1986), Peree and Steinherr (1989))
- Suffix
- have shown that an increase in exchange rate volatility will have adverse effects on the volume of international trade. Other theoretical studies have demonstrated that increased volatility can have ambiguous or positive effects on trade volume: for instance, Viaene and de Vries (1992), who explicitly model the forward market, and Franke (1991)

- In-text reference with the coordinate start=1902
- 9
- Cushman, D. O., 1983. The effects of real exchange rate risk on international trade. Journal of International Economics 15 (1-2), 45-63.

Total in-text references: 1- In-text reference with the coordinate start=5007
- Prefix
- of flexible exchange rates, neither importers nor exporters have perfect information regarding the behavior of future exchange rates, since those rates are subjected to a number of shocks. However, making use of all 2 Negative effects of exchange rate uncertainty on trade flows are reported by
- Exact
- Cushman (1983, 1986, 1988), Akhtar and Hilton (1984), Thursby and Thursby (1987), Kenen and Rodrik (1986), and Peree and Steinherr (1989),
- Suffix
- among others, while Hooper and Kohlhagen (1978), Gotur (1985), Koray and Lastrapes (1989), and Gagnon (1993) find insignificant effects. Kroner and Lastrapes (1993), using a multivariate GARCH-in-mean model, report that the reduced-form effects of volatility on export volume and prices vary widely.

- In-text reference with the coordinate start=5007
- 10
- Cushman, D. O., 1986. Has exchange rate risk depressed international trade? T h e impact of third-country exchange risk. Journal of International Money and Finance 5 (3), 361-379.

Total in-text references: 2- In-text reference with the coordinate start=1902
- Prefix
- This volatility has often been cited by the proponents of managed or fixed exchange rates as detrimental, since in their view exchange rate uncertainty will inevitably depress the volume of international trade by increasing the riskiness of trading activity.1 Several theoretical studies (e.g.
- Exact
- Ethier (1973), Clark (1973), Baron (1976), Cushman (1986), Peree and Steinherr (1989))
- Suffix
- have shown that an increase in exchange rate volatility will have adverse effects on the volume of international trade. Other theoretical studies have demonstrated that increased volatility can have ambiguous or positive effects on trade volume: for instance, Viaene and de Vries (1992), who explicitly model the forward market, and Franke (1991)

- In-text reference with the coordinate start=5007
- Prefix
- of flexible exchange rates, neither importers nor exporters have perfect information regarding the behavior of future exchange rates, since those rates are subjected to a number of shocks. However, making use of all 2 Negative effects of exchange rate uncertainty on trade flows are reported by
- Exact
- Cushman (1983, 1986, 1988), Akhtar and Hilton (1984), Thursby and Thursby (1987), Kenen and Rodrik (1986), and Peree and Steinherr (1989),
- Suffix
- among others, while Hooper and Kohlhagen (1978), Gotur (1985), Koray and Lastrapes (1989), and Gagnon (1993) find insignificant effects. Kroner and Lastrapes (1993), using a multivariate GARCH-in-mean model, report that the reduced-form effects of volatility on export volume and prices vary widely.

- In-text reference with the coordinate start=1902
- 11
- Cushman, D. O., 1988. U.S. bilateral trade flows and exchange risk during the floating period. Journal of International Economics 24 (3-4), 317-330.

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- Exact
- Suffix

- In-text reference with the coordinate start=5007
- 12
- Dixit, A., 1989. Entry and exit decisions under uncertainty. Journal of Political Economy 97 (3), 620-638.

Total in-text references: 1- In-text reference with the coordinate start=40345
- Prefix
- rate uncertainty does matter in determining 19 In a model of firms who may choose to enter or exit foreign markets, a "real options" framework h a s been utilized to demonstrate that increased volatility enhances the value of the option to enter (exit) the market, and causes firms to adopt a "wait and see" attitude.
- Exact
- Dixit (1989)
- Suffix
- shows that this causes firms to become less responsive to exchange rate movements. its ultimate effect on the behavior of trade flows, empirical researchers should attempt to estimate the components of exchange rate uncertainty and evaluate their specific effects on trade volume and trade volatility.

- In-text reference with the coordinate start=40345
- 13
- Dornbusch, R., 1976. Expectations and exchange rate dynamics. Journal of Political Economy 84 (6), 1161-1176.

Total in-text references: 1- In-text reference with the coordinate start=13616
- Prefix
- , the proposed modeling of the exchange rate process is consistent with the chartistand-fundamentalist approach suggested by Frankel and Froot (1988) and empirically tested by Vigfusson (1996). It is also broadly consistent with the permanenttransitory component decomposition drawn from Mussa's (1982) stochastic generalization of the
- Exact
- Dornbusch (1976)
- Suffix
- exchange-rate overshooting model. Empirically, Mark (1995), Chinn and Meese (1995), and Mark and Sul (1999) show that long-horizon exchange rate movements are determined by economic fundamentals such as relative money stocks and relative real incomes: stochastic processes that are quite persistent.

- In-text reference with the coordinate start=13616
- 14
- Ethier, W., 1973. International trade and the forward exchange market. American

Total in-text references: 1- In-text reference with the coordinate start=1902
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- Exact
- Ethier (1973), Clark (1973), Baron (1976), Cushman (1986), Peree and Steinherr (1989))
- Suffix

- In-text reference with the coordinate start=1902
- 16
- Evans, M. , Lyons, R., 1999. Order flow and exchange rate dynamics. Working paper, Haas School of Business, University of

Total in-text references: 1- In-text reference with the coordinate start=11737
- Prefix
- which is not observable by either the monetary authorities or the public and is modeled as a white noise process, ησηtN~,02().8 We generically refer to a shock as a general microstructure shock if it represents innovations to the exchange rate process arising from the effects of portfolio shifts among international investors (following
- Exact
- Evans and Lyons (1999)),
- Suffix
- excess speculation, bubbles and rumors, bandwagon effects, or the effects of technical trading by chartists or “noise traders”.9 Such shocks are generally short-term in nature and represent temporary excursions from the fundamental value of the exchange rate.

- In-text reference with the coordinate start=11737
- 17
- Farell, V. S., DeRosa, D. A., McCown, T. A., 1983. Effects of exchange rate variability on international trade and other economic variables: A review of the literature.

Total in-text references: 1- In-text reference with the coordinate start=5801
- Prefix
- The estimated effects of GARCH conditional variance of the nominal exchange rate on export flows differ in sign and magnitude across the countries studied. 3 For a survey of theoretical arguments and empirical findings on the relationship between exchange rate volatility and trade flows, see
- Exact
- Farell et al. (1983),
- Suffix
- IMF (1984), Willett (1986) regarding t h e literature through the mid-1980s, and Côté (1994) for more recent works. 4 It should be noted that, in almost all cases, the impact of exchange rate volatility on trade flows h a s been investigated using aggregated data.

- In-text reference with the coordinate start=5801
- 19
- Franke, G., 1991. Exchange rate volatility and international trading strategy. Journal of International Money and Finance 10 (2), 292-307.

Total in-text references: 2- In-text reference with the coordinate start=2377
- Prefix
- Other theoretical studies have demonstrated that increased volatility can have ambiguous or positive effects on trade volume: for instance, Viaene and de Vries (1992), who explicitly model the forward market, and
- Exact
- Franke (1991) and Sercu and Vanhulle (1992),
- Suffix
- who consider exporting as an option to a multinational firm facing entry–exit costs in the foreign market. Given these contradictory theoretical predictions, empirical researchers have examined the effect of both real and nominal exchange rate volatility on the volume of international trade.

- In-text reference with the coordinate start=22722
- Prefix
- trading volume of importers and exporters and the trade balance are obtained by differentiating equations (7), (12), and (13) with respect to e, yielding −= = ++() > ∂ ∂ ∂ ∂γσλ σψη Y e X e 1 1 220 and ∂ ∂γσλ σψη TB e mn = + ++() > 1 220. The obtained results are intuitive and consistent with those in the literature (see Viaene and de Vries (1992) and
- Exact
- Franke (1991)
- Suffix
- for example). A currency appreciation (depreciation) increases (decreases) the expected profits of importers (exporters), thus resulting in an increase (decrease) in imports (exports) volume and therefore a decrease (increase) in the trade balance.

- In-text reference with the coordinate start=2377
- 20
- Frankel, J., Froot, K., 1988. Chartists, fundamentalists, and the demand for dollars.

Total in-text references: 1- In-text reference with the coordinate start=13362
- Prefix
- The decomposition of the exchange rate process in (1) and its functional form assumptions are consistent at both theoretical and empirical levels. Theoretically, the proposed modeling of the exchange rate process is consistent with the chartistand-fundamentalist approach suggested by
- Exact
- Frankel and Froot (1988) and
- Suffix
- empirically tested by Vigfusson (1996). It is also broadly consistent with the permanenttransitory component decomposition drawn from Mussa's (1982) stochastic generalization of the Dornbusch (1976) exchange-rate overshooting model.

- In-text reference with the coordinate start=13362
- 22
- Gagnon, J. E., 1993. Exchange rate variability and the level of international trade. Journal of International Economics 34 (3-4), 269-287.

Total in-text references: 1- In-text reference with the coordinate start=5179
- Prefix
- However, making use of all 2 Negative effects of exchange rate uncertainty on trade flows are reported by Cushman (1983, 1986, 1988), Akhtar and Hilton (1984), Thursby and Thursby (1987), Kenen and Rodrik (1986), and Peree and Steinherr (1989), among others, while
- Exact
- Hooper and Kohlhagen (1978), Gotur (1985), Koray and Lastrapes (1989), and Gagnon (1993)
- Suffix
- find insignificant effects. Kroner and Lastrapes (1993), using a multivariate GARCH-in-mean model, report that the reduced-form effects of volatility on export volume and prices vary widely.

- In-text reference with the coordinate start=5179
- 23
- Gotur, D., 1985. Effects of exchange rate volatility on trade: Some further evidence.

Total in-text references: 1- In-text reference with the coordinate start=5179
- Prefix
- However, making use of all 2 Negative effects of exchange rate uncertainty on trade flows are reported by Cushman (1983, 1986, 1988), Akhtar and Hilton (1984), Thursby and Thursby (1987), Kenen and Rodrik (1986), and Peree and Steinherr (1989), among others, while
- Exact
- Hooper and Kohlhagen (1978), Gotur (1985), Koray and Lastrapes (1989), and Gagnon (1993)
- Suffix
- find insignificant effects. Kroner and Lastrapes (1993), using a multivariate GARCH-in-mean model, report that the reduced-form effects of volatility on export volume and prices vary widely.

- In-text reference with the coordinate start=5179
- 25
- Hooper, P., Kohlhagen, S. W., 1978. The effect of exchange rate uncertainty on the prices and volume of international trade. Journal of International Economics 8 (4), 483-511.

Total in-text references: 1- In-text reference with the coordinate start=5179
- Prefix
- However, making use of all 2 Negative effects of exchange rate uncertainty on trade flows are reported by Cushman (1983, 1986, 1988), Akhtar and Hilton (1984), Thursby and Thursby (1987), Kenen and Rodrik (1986), and Peree and Steinherr (1989), among others, while
- Exact
- Hooper and Kohlhagen (1978), Gotur (1985), Koray and Lastrapes (1989), and Gagnon (1993)
- Suffix
- find insignificant effects. Kroner and Lastrapes (1993), using a multivariate GARCH-in-mean model, report that the reduced-form effects of volatility on export volume and prices vary widely.

- In-text reference with the coordinate start=5179
- 28
- Kaminsky, G. L., Lewis, L. K., 1996. Does foreign exchange rate intervention signal future monetary policy? Journal of Monetary Economics 37 (2), 285-312.

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- Prefix
- conveys the idea that the higher is the information content of the signal (the lower is σψ2), the more weight agents will place on the signal St as ∂λ ∂σψ2 <0 in order to predict νt and therefore t ̃e. 10 Central bank intervention in the foreign exchange market may signal future monetary policy
- Exact
- (Kaminsky and Lewis (1996)).
- Suffix
- 11 This simple application of linear regression allows an agent in an uncertain environment to predict an "unobserved variable in a manner that is optimal, in a certain sense." (Sargent (1987), p. 223) 2.2.

- In-text reference with the coordinate start=17230
- 29
- Kenen, P. B., Rodrik, D., 1986. Measuring and analyzing the effect of short term volatility in real exchange rates. Review of Economics & Statistics 68 (2), 311-315.

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- Suffix

- In-text reference with the coordinate start=5007
- 30
- Koray, F., Lastrapes, W. D., 1989. Real exchange rate volatility and U.S. bilateral trade: A VAR approach. Review of Economics & Statistics 71 (4), 708-712.

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- Prefix
- Exact
- Hooper and Kohlhagen (1978), Gotur (1985), Koray and Lastrapes (1989), and Gagnon (1993)
- Suffix

- In-text reference with the coordinate start=5179
- 31
- Kroner, K., Lastrapes, W. D., 1993. The impact of exchange rate volatility o n international trade: Reduced form estimates using the GARCH-in-mean model. Journal of International Money and Finance 12 (3), 298-318.

Total in-text references: 1- In-text reference with the coordinate start=5313
- Prefix
- Negative effects of exchange rate uncertainty on trade flows are reported by Cushman (1983, 1986, 1988), Akhtar and Hilton (1984), Thursby and Thursby (1987), Kenen and Rodrik (1986), and Peree and Steinherr (1989), among others, while Hooper and Kohlhagen (1978), Gotur (1985), Koray and Lastrapes (1989), and Gagnon (1993) find insignificant effects.
- Exact
- Kroner and Lastrapes (1993),
- Suffix
- using a multivariate GARCH-in-mean model, report that the reduced-form effects of volatility on export volume and prices vary widely. The estimated effects of GARCH conditional variance of the nominal exchange rate on export flows differ in sign and magnitude across the countries studied. 3 For a survey of theoretical arguments and empirical findings on the relationsh

- In-text reference with the coordinate start=5313
- 32
- Mark, N. C., 1995. Exchange rates and fundamentals: Evidence on long-horizon predictability. American Economic Review 85 (1), 201-218.

Total in-text references: 1- In-text reference with the coordinate start=13689
- Prefix
- It is also broadly consistent with the permanenttransitory component decomposition drawn from Mussa's (1982) stochastic generalization of the Dornbusch (1976) exchange-rate overshooting model. Empirically,
- Exact
- Mark (1995), Chinn and Meese (1995), and Mark and Sul (1999)
- Suffix
- show that long-horizon exchange rate movements are determined by economic fundamentals such as relative money stocks and relative real incomes: stochastic processes that are quite persistent.

- In-text reference with the coordinate start=13689
- 33
- Mark, N. C., Sul, D., 1999. Nominal exchange rates and monetary fundamentals: Evidence from a small post-Bretton Woods panel. Working Paper, Department of

Total in-text references: 1- In-text reference with the coordinate start=13689
- Prefix
- It is also broadly consistent with the permanenttransitory component decomposition drawn from Mussa's (1982) stochastic generalization of the Dornbusch (1976) exchange-rate overshooting model. Empirically,
- Exact
- Mark (1995), Chinn and Meese (1995), and Mark and Sul (1999)
- Suffix
- show that long-horizon exchange rate movements are determined by economic fundamentals such as relative money stocks and relative real incomes: stochastic processes that are quite persistent.

- In-text reference with the coordinate start=13689
- 36
- Peree, E., Steinherr, A., 1989. Exchange rate uncertainty and foreign trade. European

Total in-text references: 2- In-text reference with the coordinate start=1902
- Prefix
- Exact
- Ethier (1973), Clark (1973), Baron (1976), Cushman (1986), Peree and Steinherr (1989))
- Suffix

- In-text reference with the coordinate start=5007
- Prefix
- Exact
- Suffix

- In-text reference with the coordinate start=1902
- 38
- Sargent, T., 1987. Macroeconomic Theory. Academic Press, Boston, MA.

Total in-text references: 1- In-text reference with the coordinate start=17436
- Prefix
- to predict νt and therefore t ̃e. 10 Central bank intervention in the foreign exchange market may signal future monetary policy (Kaminsky and Lewis (1996)). 11 This simple application of linear regression allows an agent in an uncertain environment to predict an "unobserved variable in a manner that is optimal, in a certain sense."
- Exact
- (Sargent (1987),
- Suffix
- p. 223) 2.2. The Behavior of Importers The importer faces a nonstochastic inverse linear demand function PY()=a− Y 2 , where a>0 and P and Y denote the price and volume (quantity) of imports, respectively.12 Assuming that the nominal price of the imported commodity is one unit of foreign currency, the cost of imports in terms

- In-text reference with the coordinate start=17436
- 39
- Sercu, P., Vanhulle, C., 1992. Exchange rate volatility, international trade, and the value of exporting firm. Journal of Banking and Finance 16 (1), 152-182.

Total in-text references: 1- In-text reference with the coordinate start=2377
- Prefix
- Other theoretical studies have demonstrated that increased volatility can have ambiguous or positive effects on trade volume: for instance, Viaene and de Vries (1992), who explicitly model the forward market, and
- Exact
- Franke (1991) and Sercu and Vanhulle (1992),
- Suffix
- who consider exporting as an option to a multinational firm facing entry–exit costs in the foreign market. Given these contradictory theoretical predictions, empirical researchers have examined the effect of both real and nominal exchange rate volatility on the volume of international trade.

- In-text reference with the coordinate start=2377
- 40
- Taylor, M. P., Allen, H., 1992. The use of technical analysis in the foreign exchange market. Journal of International Money and Finance 11 (3), 304-314.

Total in-text references: 1- In-text reference with the coordinate start=12729
- Prefix
- Monetary policy has a significant impact on the behavior of these fundamental factors. 8 Although it is possible to introduce high-frequency, mean-reverting components in modeling η t, doing so would complicate the analysis without affecting any of the subsequent results. 9
- Exact
- Taylor and Allen (1992) and Cheung and Chinn (1999)
- Suffix
- report that foreign exchange dealers rely on technical analysis to form short-term exchange rate predictions, which tend to be self-fulfilling. underlying economic fundamentals. We assume that the νt and tη processes are independent.

- In-text reference with the coordinate start=12729
- 41
- Thursby, J. G., Thursby, M. C., 1987. Bilateral trade flows, the Linder hypothesis and exchange rate risk. Review of Economics & Statistics, 69 (3), 488-495.

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- Exact
- Suffix

- In-text reference with the coordinate start=5007
- 44
- Vigfusson, R., 1996. Switching between chartists and fundamentalists: A Markov regime-switching approach. Working Paper 96-1, Bank of Canada.

Total in-text references: 1- In-text reference with the coordinate start=13415
- Prefix
- Theoretically, the proposed modeling of the exchange rate process is consistent with the chartistand-fundamentalist approach suggested by Frankel and Froot (1988) and empirically tested by
- Exact
- Vigfusson (1996).
- Suffix
- It is also broadly consistent with the permanenttransitory component decomposition drawn from Mussa's (1982) stochastic generalization of the Dornbusch (1976) exchange-rate overshooting model.

- In-text reference with the coordinate start=13415
- 45
- Wei, S., 1999. Currency hedging and goods trade. European Economic Review 43 (7), 1371-1394.

Total in-text references: 1- In-text reference with the coordinate start=9986
- Prefix
- can indirectly influence the volume of trade through its effects on the forward rate. 6 Some researchers have proposed that the use of hedging instruments could possibly eliminate t h e effects of exchange rate uncertainty on trade. However, there are well-known limitations and costs associated with the usage of currency derivatives. In a recent empirical study,
- Exact
- Wei (1999)
- Suffix
- shows that the availability of hedging instruments cannot explain the observed inconsistent relationship between exchange rate volatility and trade flows. The first two components of the process in (1) are driven by the fundamental factors determining exchange rate behavior.

- In-text reference with the coordinate start=9986
- 46
- Willett, T. D., 1986. Exchange rate volatility, international trade, and resource allocation: A perspective on recent research. Journal of International Money and Finance 5 (0), S101-S112.

Total in-text references: 1- In-text reference with the coordinate start=5844
- Prefix
- The estimated effects of GARCH conditional variance of the nominal exchange rate on export flows differ in sign and magnitude across the countries studied. 3 For a survey of theoretical arguments and empirical findings on the relationship between exchange rate volatility and trade flows, see Farell et al. (1983), IMF (1984),
- Exact
- Willett (1986)
- Suffix
- regarding t h e literature through the mid-1980s, and Côté (1994) for more recent works. 4 It should be noted that, in almost all cases, the impact of exchange rate volatility on trade flows h a s been investigated using aggregated data.

- In-text reference with the coordinate start=5844