The trade balance and the real exchange rate: the US evidence from 1973: 3 to 1994: 9

AbstractThis paper implements a structural vector auto regression (SVAR) analysis to investigate the impacts and importance of fiscal shocks on the dynamics of the real exchange rate and the trade balance in three emerging economies: Brazil, Chile and Mexico. We show that the effects of an unexpected increase in government spending are not uniform across countries with higher spending leading to a depreciation of the real exchange rate in Brazil and Chile, whereas in Mexico, we observe an appreciation. The trade balance deteriorates in all three countries. We also report that an unexpected increase in taxes leads to recessionary impacts and improves the trade balance. Only in Mexico is there evidence of a real exchange rate depreciation. Finally, we show that fiscal shocks account for roughly 20% of real exchange fluctuations.

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External Wealth, the Trade Balance, and the Real Exchange Rate

SSRN Electronic Journal ◽

10.2139/ssrn.879454 ◽

2002 ◽

Author(s):

Philip R. Lane ◽

Gian Maria Milesi-Ferretti

Keyword(s):

Exchange Rate ◽

Real Exchange Rate ◽

Trade Balance ◽

The Real

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Asymmetric effect of exchange rate volatility on trade balance in Nigeria

National Accounting Review ◽

10.3934/nar.2021018 ◽

2021 ◽

Vol 3 (3) ◽

pp. 342-359

Author(s):

Nuraddeen Umar Sambo ◽

◽

Ibrahim Sambo Farouq ◽

Mukhtar Tijjani Isma'il ◽

◽

...

Keyword(s):

International Trade ◽

Exchange Rate ◽

Real Exchange Rate ◽

Financial Development ◽

Trade Balance ◽

Exchange Rate Volatility ◽

The Real ◽

Non Linear ◽

The Relationship ◽

Real Exchange Rate Volatility

<abstract> <p>The relationship between real exchange rate volatility and the trade balance has been a contentious issue since the fall of Bretton woods agreement of 1973, owing to the lack of unanimity on the effect. This article provides empirical evidence of the link between the real exchange rate volatility and the trade balance in the light of financial development, confirming the assertion that the effect is significantly dependent on the country's level of financial development. Due to Nigeria's relatively undeveloped financial system, its exchange rate dampens the country's exports. Rather than studying the relationship in isolation, we examine the moderating role of financial development on the link between export and the real exchange rate volatility in this paper. The empirical estimation is based on the Nigeria's data set spanning the years 1980–2019, and it employs threshold autoregressive non-linear co-integration and non-linear ARDL estimation techniques. According to the findings, financial development magnifies the beneficial benefits of the real exchange rate on Nigeria's foreign trade. It also states that the uncertainty in foreign capital flows has a negative impact on Nigeria's international trade. The findings have broad policy implications, implying that in order to diversify and improve the economy's future growth and associated international trade, Nigeria's policymakers should promote adequate financial sector development, as financial shocks are amplified by poorly implemented credit markets.</p> </abstract>

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Investigating the Relationship between Trade Balance and the Exchange Rate: The Case of Laos’ Trade with Thailand

Global Business Review ◽

10.1177/0972150917713869 ◽

2018 ◽

Vol 19 (3) ◽

pp. 590-603 ◽

Cited By ~ 1

Author(s):

Phouphet Kyophilavong ◽

Muhammad Shahbaz ◽

Ijaz Ur Rehman ◽

Somchith Souksavath ◽

Sengchanh Chanthasene

Keyword(s):

Economic Growth ◽

Exchange Rate ◽

Trade Policy ◽

Real Exchange Rate ◽

Trade Balance ◽

The Real ◽

J Curve ◽

The Exchange Rate ◽

The Relationship

We investigate the nexus between Laos’ trade balance and its real exchange rate with Thailand. We apply the combined cointegration approach and find that the trade balance and the real exchange rate have cointegration. The devaluation of Laos’ Kip improves the trade balance, but there is no evidence of the J-curve phenomenon. Laos’s economic growth causes its trade balance to deteriorate. A rise in Thai income increases the trade balance of Laos. This study presents new insights for policymakers who seek to sustain trade with Thailand by designing a comprehensive trade policy.

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Asymmetrical Exchange Rates Effect on Indonesia's Trade Balance in Tourism

JEJAK ◽

10.15294/jejak.v14i1.27234 ◽

2021 ◽

Vol 14 (1) ◽

pp. 102-122

Author(s):

Akbar Maulana ◽

Taufiq Carnegie Dawood ◽

Teuku Zulham

Keyword(s):

Exchange Rate ◽

Real Exchange Rate ◽

Trade Balance ◽

Real Rate ◽

The Real ◽

Empirical Results ◽

Nonlinear Ardl ◽

Ardl Approach ◽

China And Japan ◽

The Government

The main objective of this research is to analyze the effect of depreciation and real exchange rate appreciation on Indonesia's tourism trade balance bilaterally against Australia, China, Japan, Malaysia, and Singapore. Such analysis on bilateral relations have never been studied for developing markets countries, namely Indonesia. This study uses a linear ARDL approach and a nonlinear ARDL approach with the dependent variable on the tourism trade balance and the real exchange rate as independent variables. Income, foreign direct investment (FDI), and natural disasters as control variables. The empirical results show that Chinese and Japanese tourists respond positively to the depreciation in the real currency rate of exchange, thereby increasing Indonesia's tourism trade balance. Nonlinear ARDL shows that the relation concerning the real rate of exchange plus the balance of trade is non-symmetrical with respect to China and Japan, while Australia, Malaysia, and Singapore are symmetrical. These results suggest that the government should formulate policies to increase tourist visits from China and Japan. Further empirical results also found a J-curve pattern in Indonesia-China and Indonesia-Japan.

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The dynamics of inflation, exchange rates and the trade balance in a small economy

International Journal of Development Issues ◽

10.1108/ijdi-12-2017-0209 ◽

2018 ◽

Vol 17 (2) ◽

pp. 246-264 ◽

Cited By ~ 2

Author(s):

Zelealem Yiheyis ◽

Jacob Musila

Keyword(s):

Exchange Rate ◽

Real Exchange Rate ◽

Trade Balance ◽

Exchange Rate Policy ◽

Content Type ◽

The Real ◽

Weak Support ◽

Long Run ◽

Curve Effect ◽

Short Run

Purpose The purpose of this study is to examine the temporal relationships between inflation and exchange rate changes and their implications for the trade balance in Uganda, which saw persistent trade deficits, rising inflation and disinflation episodes, as well as significant exchange-rate realignments and other liberalization measures over the sample period considered. Design/methodology/approach The short-run dynamics of the variables in question and the pattern of their long-run relationships are examined applying the bounds testing approach to cointegration on quarterly data. Findings The estimates suggest that, in the long run, a real depreciation leads to an increase in inflation; and that both real depreciation and inflation exert no significant effect on the trade balance. The estimated short-run dynamics suggest a causal relationship between the trade balance and the real exchange rate and between the real exchange rate and inflation, which is also found responsive to developments in the foreign sector. Taken together, the short-run and long-run multipliers seem to provide a weak support for the J-curve effect, while no evidence is found for the presence of the S-curve effect. Originality/value The study sheds light on the relationship among real exchange rate, inflation and the trade balance in the context of a small developing economy; it highlights that an improvement in the trade balance requires more than an appropriate exchange rate policy and underscores the importance of other policies in strengthening the external sector of the economy.

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