Short-run and long-run effects of exchange rate change on trade balance: Evidence from China and its trading partners

2012 ◽  
Vol 24 (4) ◽  
pp. 266-273 ◽  
Author(s):  
Chun-Hsuan Wang ◽  
Chun-Hung A. Lin ◽  
Chih-Hai Yang
Keyword(s):  
Exchange Rate ◽  
Trade Balance ◽  
Rate Change ◽  
Exchange Rate Change ◽  
Long Run ◽  
Trading Partners ◽  
Short Run

scholarly journals FENOMENA KURVA J PADA NERACA PERDAGANGAN INDONESIA DENGAN ENAM NEGARA MITRA DAGANG UTAMA

2018 ◽  
Vol 1 (2) ◽  
pp. 10
Author(s):  
Anggraeni Tri Hapsari ◽  
Akhmad Syakir Kurnia
Keyword(s):  
Exchange Rate ◽  
Trade Balance ◽  
Bilateral Trade ◽  
Long Run ◽  
J Curve ◽  
Bilateral Trade Balance ◽  
Trading Partners ◽  
Short Run ◽  
Balance Of Trade ◽  
The Exchange Rate

Whether a J curve phenomenon exists or not on the balance of trade has been an interest for empirical investigation in international economics. The phenomenon is typically associated with the response of the balance of trade to the exchange rate dynamics. Since a country has different trade features with different trading partners, the trade balances adjustment to the exchange rate dynamics should be seen as a head to head phenomenon. This paper investigates the effect of real effective exchange rate (REER) on the bilateral trade balance between Indonesia and its six major trading partners, namely Japan, China, Singapore, United States, South Korea and India on a quarterly basis over the period 1995.1 to 2013.4. The short run and the long run effect of the REER on the balance of trade is expected to be captured using error correction model (ECM) and vector error correction model (VECM). Subsequently, impulse response function is used to trace out the behavior of the bilateral trade balance in response to the REER shock whereas forecast error variance decomposition (FEVD) is used to decay the effect of innovation variables in the system. The result indicates that in the long run a J curve phenomenon appears on the bilateral trade balance between Indonesia and Japan, China, Singapore as well as South Korea. In the short run, a J curve phenomenon is seen on the bilateral trade balance between Indonesia and China as well as Singapore. This confirms that a J curve is a head to head phenomenon that has correlation with the trade features. Thus, the correction mechanism to the trade balance in response to the exchange rate shock (i.e. exchange rate market intervention) should count trade features as a consideration

IS THERE J-CURVE EFFECT IN THE COMMODITY TRADE OF SINGAPORE WITH MALAYSIA? AN EMPIRICAL STUDY

2018 ◽  
Vol 63 (03) ◽  
pp. 567-591
Author(s):  
MOHSEN BAHMANI-OSKOOEE ◽  
HANAFIAH HARVEY
Keyword(s):  
Exchange Rate ◽  
Trade Balance ◽  
Commodity Trade ◽  
Long Run ◽  
J Curve ◽  
Trading Partners ◽  
Short Run ◽  
Exchange Rate Changes ◽  
Small Industries ◽  
The Impact

A previous study that investigated the impact of exchange rate changes on the trade balance of Singapore with each of its 13 largest trading partners on bilateral basis found significant long-run effects in four out of 13 cases. In the trade balance between Singapore and Malaysia as a major partner, the real exchange rate had neither short-run nor long-run significant effects. To reduce the aggregation bias, in this paper, we disaggregate the trade flows between the two countries by industry and consider the trade balance of each of the 136 industries that trade between the two countries. We find that the trade balance of 79 industries are affected by exchange rate changes in the short run. However, short-run effects last into the long run in only 19 industries which mostly happen to be small industries.

scholarly journals Currency Depreciation, Trade Balance and Intra-Industry Trade Interactions in Turkey’s OECD Trade

2016 ◽  
Vol 8 (4) ◽  
pp. 8 ◽  
Author(s):  
Mehmet Demiral
Keyword(s):  
Exchange Rate ◽  
Trade Balance ◽  
Real Effective Exchange Rate ◽  
Series Data ◽  
Adjustment Process ◽  
Industry Trade ◽  
Long Run ◽  
Effective Exchange ◽  
Short Run ◽  
Effective Exchange Rate

<p>This study re-examines the determinants of Turkey’s trade balance in its manufactures trade with 33 OECD-member countries for the short-run and the long-run. Unlike other studies, in the relationships we also control the moderating effects of the availability of import substitutes proxied by intra-industry trade. We analyze quarterly aggregated time-series data of the period spanning from 1998.QI to 2015.QIII, following the autoregressive distributed lag (ARDL) bounds testing approach to the cointegration and the error correction modeling. Estimation results reveal that real effective exchange rate, together with domestic and foreign incomes are still among the core determinants of Turkey’s trade balance in the manufacturing sectors. There is no significant impact of domestic final oil prices that also include all the taxes on gasoline. The trade balance depends on domestic income negatively and the aggregated income of the OECD countries positively. The finding that real depreciation of Turkish lira against to those of Turkey’s OECD trade partners improves trade balance in both the short-run and the long-run, indicates no evidence of J-curve adjustment process. Unsurprisingly, the intra-industry trade seems to be an important factor that moderates the elasticities of trade balance to its determinants, especially to real effective exchange rate and domestic income. Overall results underline the importance of import-substitution capability besides the export-oriented production to ease the longstanding large trade deficits for Turkey.</p><strong></strong>

The Effect of Real Exchange Rate on Trade Balance in a Resource-Rich Economy: The Case of Mongolia

2018 ◽  
Vol 53 (4) ◽  
pp. 211-224 ◽  
Author(s):  
Gan-Ochir Doojav
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Trade Balance ◽  
Developing Economies ◽  
Jel Classification ◽  
Vector Error Correction ◽  
Vector Error ◽  
Long Run ◽  
Short Run ◽  
Exchange Rate Depreciation

For resource-rich developing economies, the effect of real exchange rate depreciation on trade balance may differ from the standard findings depending on country specific characteristics. This article employs vector error correction model to examine the effect of real exchange rate on trade balance in Mongolia, a resource-rich developing country. Empirical results show that exchange rate depreciation improves trade balance in both short and long run. In particular, the well-known Marshall–Lerner condition holds in the long run; however, there is no evidence of the classic J-curve effects in the short run. The results suggest that the exchange rate flexibility may help to deal effectively with current account deficits and exchange rate risk. JEL Classification: C32, C51, F14, F32

scholarly journals Research On Monetary Neutrality: Evidence From Exchange Rate And Trade Balance Of G-7 Countries

2011 ◽  
Vol 24 (2) ◽  
Author(s):  
Doh-Khul Kim
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Trade Balance ◽  
Monetary Shocks ◽  
Font Size ◽  
Long Run ◽  
Short Period ◽  
Short Run ◽  
Monetary Neutrality ◽  
Nominal Shocks

<p class="MsoBodyText" style="line-height: normal; margin: 0in 0.5in 0pt;"><span style="font-family: Times New Roman;"><span style="font-size: 10pt;">According to a recent paper by Fisher and Huh (200</span><span style="font-size: 10pt; mso-fareast-language: KO;">2</span><span style="font-size: 10pt;">), in contrast to a long-run neutrality hypothesis, nominal shocks have long-run effects on a country&rsquo;s real exchange rate</span><span style="font-size: 10pt; mso-fareast-language: KO;"> and trade balance.</span><span style="font-size: 10pt;"> However employing </span><span style="font-size: 10pt; mso-fareast-language: KO;">a </span><span style="font-size: 10pt;">similar method (VAR) with identical restrictions (</span><span style="font-size: 10pt; mso-fareast-language: KO;">long-run neutrality and </span><span style="font-size: 10pt;">short-run recursive</span><span style="font-size: 10pt; mso-fareast-language: KO;"> hypotheses</span><span style="font-size: 10pt;">), </span><span style="font-size: 10pt; mso-fareast-language: KO;">this paper </span><span style="font-size: 10pt;">show</span><span style="font-size: 10pt; mso-fareast-language: KO;">s</span><span style="font-size: 10pt;"> that the effects on the real exchange rate are much shorter</span><span style="font-size: 10pt; mso-fareast-language: KO;"> in this G-7 country study</span><span style="font-size: 10pt;"> than what </span><span style="font-size: 10pt; mso-fareast-language: KO;">Fisher and Huh (2002) contend.</span><span style="font-size: 10pt;"> Further, the trade balance improves for a short period of time, from which </span><span style="font-size: 10pt; mso-fareast-language: KO;">it can</span><span style="font-size: 10pt;"> conclude there is a shorter existence of the depreciation effect in response to </span><span style="font-size: 10pt; mso-fareast-language: KO;">expansionary</span><span style="font-size: 10pt;"> monetary shocks, which supports the long-run neutrality hypothesis</span><span style="font-size: 10pt; mso-fareast-language: KO;"> in an open macroeconomic framework</span><span style="font-size: 10pt;">.<span style="mso-spacerun: yes;">&nbsp; </span></span></span></p>

scholarly journals Trade Balance and Exchange Rate in Thailand & the Implications for Vietnam: An Application using Instrumental Variable and the Heterogeneous Panel Cointegration Methods

2016 ◽  
Vol 23 (01) ◽  
pp. 137-160
Author(s):  
Anh Vo The ◽  
Duc Vo Hong
Keyword(s):  
Exchange Rate ◽  
Trade Balance ◽  
Panel Cointegration ◽  
Least Square ◽  
Monetary Policies ◽  
Ordinary Least Square ◽  
Long Run ◽  
Trading Partners ◽  
The Exchange Rate ◽  
Heterogeneous Panel

This study aims to investigate the link of trade balance and exchange rate for the case of Thailand in different aspects by initially attempting to examine what factors determine the trade balance in Thailand and then to test the long-run relationship between the exchange rate and Thailand’s trade balance. The empirical findings indicate that the exchange rate and relative growth rate of income play central roles in explaining Thailand’s trade balance, and fiscal and monetary policies are beneficial in some cases. Additionally, panel fully modified ordinary least square (FMOLS) estimations illustrate that a devaluation of Thailand Baht offers a significantly positive improvement on its trade balance in the long run, especially for the groups of countries with upper middle and high income in America and Europe. Individual FMOLS regressions of Thailand’s trade balance and each of its 62 trading partners suggest that a devaluation of Thailand’s currency would stimulate Thailand’s trade performance with over 20 trading partners, but hurt its performance with the other 10 countries and be inconclusive to the others.

scholarly journals Different Approaches to Merchandise Trade Balance in Pakistan

2020 ◽  
Vol 12 (Number 2) ◽  
pp. 19-30
Author(s):  
Yousuf Aboya ◽  
Arsalan Hussain ◽  
Rohail Hassan ◽  
Hassan Mujtaba Nawaz Saleem ◽  
Aamir Hussain Siddiqui
Keyword(s):  
Exchange Rate ◽  
Trade Balance ◽  
Trade Deficit ◽  
Real Effective Exchange Rate ◽  
Series Data ◽  
Long Run ◽  
Effective Exchange ◽  
Short Run ◽  
Merchandise Trade ◽  
Effective Exchange Rate

The current study empirically examines the three major approaches to trade balance for Pakistan by utilizing the yearly data from 1972 to 2016. Monetary, elasticity, and absorption approaches were tested by developing a model that incorporates all three approaches. The significant contribution of the study is that it uses only the merchandise trade deficit account, which includes trade of only physical goods. The study used time-series data; therefore, variables have been tested for the stationarity, and it is found that there is a combination of I (0) and I (1) variables, so ARDL bounds testing approach to co-integration has been employed to find the short run and long run associations among the variables. The bound test results discovered that there is a presence of stable long-term association among the merchandise trade deficit account, real broad money supply, real effective exchange rate, and real domestic absorption. The results further revealed that merchandise trade discrepancy is determined purely by the real effective exchange rate, which specifies that the exchange rate's devaluation increases the deficit in the long run whereas in the short-run increase in domestic absorption decreases the merchandise trade deficit.

scholarly journals Linear and Nonlinear Dynamics of the Turkish Trade Balance

2016 ◽  
Vol 8 (2) ◽  
pp. 70 ◽  
Author(s):  
Huseyin Karamelikli
Keyword(s):  
United States ◽  
United Kingdom ◽  
Exchange Rate ◽  
Trade Balance ◽  
Bilateral Trade ◽  
Time Series Data ◽  
Series Data ◽  
Long Run ◽  
J Curve ◽  
Short Run

<p>This study empirically analyses bilateral trade of Turkey with her main trade partners using monthly time series data over the period of 2000 to 2015. J-curve theory and short-run dynamics of bilateral trade is tested by linear ARDL and Non-linear ARDL approaches. The empirical results indicate that there is no J-curve effect during short-run for United States and for France; it symmetrically exists to Germany and asymmetrically to United Kingdom. Also long-run relationship between exchange rate and trade balance has mixed results. Asymmetric long-run relationship between exchange rate and trade balance for United States exists where it is symmetrically most appropriate for Germany. In the other hand this study failed to verify any long-run relationship between exchange rate and trade balance for France and for United Kingdom.</p>

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