Trade Balance and Exchange Rate: Unit Roots, Co-integration and Long Memory in the US and the UK

This paper examines the exchange rate returns of the Rand (relative to the US dollar) and the Naira (relative to the US dollar) for the presence of volatility. It also examines the effect of the exchange rate returns on the performance of their respective stock market. While it was found that the returns of the South African Rand was volatile, the Nigerian naira was not. Estimating the effect of exchange rate returns and crude oil price on the stock market indices of both countries showed that exchange rate return have a positive effect on the performance of the Nigerian stock exchange thus, confirming the stock flow hypothesis for Nigeria and refuting same for South Africa. Although the VAR granger causality identifies short run fluctuation of the naira as a significant factor affecting the performance of the Nigerian stock exchange in the short run, the Johannesburg stock exchange was found to be mostly affected by short run changes in the Rand and the UK FTSE 100. The paper concludes that policies aimed at stabilizing exchange rate and encouraing more non-oil stocks to be quoted in the Nigerian stock exchange will important. For the Johanesburg stock exchange, raising the listing requirement for firms quoted in the UK FTSE 100 and also seeking listing or already listed in the JSE will be a plausible idea. For both countries, however, curtailing swings in their exchange rate returns would help attract new investments and sustain existing ones hence, helping to spur growth.

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Comment on Trade Balance in the Floating Exchange Rate System and LS-LM Framework: A Theoretical Analysis on the US-Japan Imbalance and Recommended Policy Mix

Asian Economic Journal ◽

10.1111/j.1467-8381.1991.tb00066.x ◽

1991 ◽

Vol 5 (2) ◽

pp. 255-260

Author(s):

Yasumi Matsumoto

Keyword(s):

Exchange Rate ◽

Theoretical Analysis ◽

Trade Balance ◽

Policy Mix ◽

Rate System ◽

The Us ◽

Floating Exchange Rate ◽

Exchange Rate System

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The US-China Currency Dispute: Is a Rise in the Yuan Necessary, Inevitable or Desirable?

Global Economy Journal ◽

10.2202/1524-5861.1298 ◽

2007 ◽

Vol 7 (3) ◽

pp. 1850117 ◽

Cited By ~ 9

Author(s):

John A. Tatom

Keyword(s):

Exchange Rate ◽

Trade Balance ◽

The United States ◽

Exchange Rate Policy ◽

Capital Account ◽

Trade Imbalance ◽

Fixed Rate ◽

Economic Basis ◽

The Us ◽

Rate Policy

China-bashing has become a popular US media and political sport. This is largely due to the US trade imbalance and the belief, by some, that China is responsible for it because it manipulates its currency to hold down the dollar prices of its goods, unfairly creating a trade advantage that has contributed to the loss of US businesses and jobs. This paper reviews the problem of the large trade imbalance that the United States has with China and its relationship to Chinese exchange rate policy. It examines the link between a Chinese renminbi appreciation and the trade balance and also whether a generalized dollar decline could solve the global or Chinese US trade imbalance. The consensus view explained here is that a renminbi appreciation is not likely to fix either the trade imbalance with China or overall. If these perceived benefits of a managed float are small or non-existent, then perhaps they should be pursued anyway because of small costs or even benefits for China. Section IV looks at the costs of a managed float in terms of the benefits of the earlier peg. Opponents of a fixed dollar/yuan exchange rate ignore the costs of a managed float for China, especially with limits on currency convertibility. These costs are outlined here in order to provide an economic basis for the earlier fixed rate and China’s reluctance to appreciate. Finally it is suggested that the necessary convertibility on capital account, toward which China is moving, could easily result in yuan depreciation under a floating rate regime. This is hardly the end that China critics have in mind and it is not one that would improve US or other trade imbalances with China.

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