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 Effect of Depreciation of the Exchange Rate on the Trade Balance of Albania

2017 ◽  
Vol 63 (3) ◽  
pp. 27-36
Author(s):  
Safet Kurtović ◽  
Blerim Halili ◽  
Nehat Maxhuni
Keyword(s):  
Exchange Rate ◽  
Trade Balance ◽  
Real Effective Exchange Rate ◽  
Bounds Testing ◽  
Vector Error Correction ◽  
The Real ◽  
Vector Error ◽  
Effective Exchange ◽  
Short Run ◽  
Effective Exchange Rate

AbstractThe paper investigates the effect of the real effective exchange rate depreciation of the lek on the trade balance of Albania using quarterly data from 1994 to 2015. Bounds testing cointegration approach, vector error correction model (VECM), and impulse response were used for the empirical analysis. The results of the study show a long-term cointegration between the real effective exchange rate (REER) and the trade balance (TB). Specifically, the REER depreciation positively affects the trade balance of Albania in both the long and short run, indicating the weak presence of the J-curve effect. Important recommendations were derived from the results.

scholarly journals The Effects of Oil Price Changes And Exchange Rate Volatility On Unemployment

2013 ◽  
Vol 2 (4) ◽  
pp. 72-83
Author(s):  
Mohd Shahidan Shaari ◽  
Nor Ermawati Hussain ◽  
Hafizah Abdul Rarhim
Keyword(s):  
Exchange Rate ◽  
Exchange Rate Volatility ◽  
Oil Price ◽  
Integration Technique ◽  
Correction Model ◽  
Vector Error Correction ◽  
Vector Error ◽  
Long Run ◽  
Short Run ◽  
The Empirical Analysis

The study aims to examine the effects of oil price and exchange rate on unemployment in Malaysia. The empirical analysis commence by analyzing the time series property of data. The Johansen VAR-based co-integration technique was applied to examine the long run relationship between exchange rate, oil price and unemployment and found the long run relationship does exist. The vector error correction model was performed to check the short run dynamics and found that the short run dynamics are influenced by the estimated long run equilibrium. Granger causality was done and found that oil price does not affect unemployment but exchange rate has an influence on unemployment. Therefore, putting the exchange rate under control should be implemented to control unemployment.

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

2018 ◽  
Vol 17 (2) ◽  
pp. 246-264 ◽  
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.

scholarly journals EFFECT OF EXCHANGE RATE VOLATILITY ON UGANDA'S TRADE BALANCE

2021 ◽  
Vol 8 (5) ◽  
pp. 532-574
Author(s):  
Qianling Shen ◽  
Henry Orach ◽  
Pu Chen ◽  
Shiying Wei ◽  
Hassan Ssewajje ◽  
...  
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Real Exchange Rate ◽  
Trade Balance ◽  
Real Exchange Rates ◽  
Exchange Rate Volatility ◽  
Data Generation ◽  
Long Run ◽  
Short Run ◽  
Adf Test

This study examines the long-run and the short-run relationship between the real exchange rate, GDP, FDI, inflation (INF), gross capital formation (GCF), Net official's development assistance (NODA), GNI, and trade balance in Uganda for the period 1994-2018. We used an Augmented Dickey-Fuller (ADF) test for the stationarity test, and we use the Johannsen cointegration approach to prove the existence of cointegration. The ADF tests show that the series was non-stationary in level but became stationary after the first difference. The Johannsen cointegration test indicates the long and short-run relationship between all the explanatory and trade balance in Uganda. Under such circumstances, a Vector Error Correction Model (VECM) is employed since the results offer more information than other data generation processes. Our findings are as follows: Real exchange rates, FDI, GCF and have a positive relationship with Trade balance. It means that Uganda can depreciate the Exchange rate to improve its Trade balance. The results proved the J-Curve effect's existence (i.e., the long-term impact of exchange rate on trade balance). The recommendations from this study are - Uganda's monetary policy management should emphasize more efforts on the stability and minimization of the volatility of exchange rates of the shillings since its movements affect international prices both negatively and positively, leading to either a decline or trade boost. Keywords: Trade balance; Real exchange rate; Net official's development assistances; GNI; VECM model; Uganda

Enhancing Economic Growth and Government Revenue Generation in Nigeria: The Role of Diaspora Remittances

2021 ◽  
pp. 003464462110256
Author(s):  
Dal Didia ◽  
Suleiman Tahir
Keyword(s):  
Economic Growth ◽  
Parameter Estimates ◽  
Gross Domestic Product Growth ◽  
Correction Model ◽  
Vector Error Correction ◽  
Vector Error ◽  
Long Run ◽  
Short Run ◽  
The Empirical Analysis

Even though remittances constitute the second-largest source of foreign exchange for Nigeria, with a $24 billion inflow in 2018, its impact on economic growth remains unclear. This study, therefore, examined the short-run and long-run impact of remittances on the economic growth of Nigeria using the vector error correction model. Utilizing World Bank data covering 1990–2018, the empirical analysis revealed that remittances hurt economic growth in the short run while having no impact on economic growth in the long run. Our parameter estimates indicate that a 1% increase in remittances would result in a 0.9% decrease in the gross domestic product growth rate in the short run. One policy implication of this study is that Nigeria needs to devise policies and interventions that minimize the emigration of skilled professionals rather than depending on remittances that do not offset the losses to the economy due to brain drain.

scholarly journals Do Erratic Rainfalls Hamper Grain Production? Analysis of Supply Response of Rice to Price and Non-Price Factors

Agronomy ◽  
2021 ◽  
Vol 11 (8) ◽  
pp. 1463
Author(s):  
Ghulam Mustafa ◽  
Azhar Abbas ◽  
Bader Alhafi Alotaibi ◽  
Fahd O. Aldosri
Keyword(s):  
Unit Root Test ◽  
Rice Production ◽  
Vector Error Correction ◽  
Supply Response ◽  
Target Time ◽  
Vector Error ◽  
Long Run ◽  
Short Run ◽  
The Government ◽  
The Impact

Increasing rice production has become one of the ultimate goals for South Asian countries. The yield and area under rice production are also facing threats due to the consequences of climate change such as erratic rainfall and seasonal variation. Thus, the main aim of this work was to find out the supply response of rice in Malaysia in relation to both price and non-price factors. To achieve this target, time series analysis was conducted on data from 1970 to 2014 using cointegration, unit root test, and the vector error correction model. The results showed that the planted area and rainfall have a significant effect on rice production; however, the magnitude of the impact of rainfall is less conspicuous for off-season (season 2) rice as compared to main-season rice (season 1). The speed of adjustment from short-run to long-run for season-1 rice production is almost two-and-a-half years (five production seasons), while for season-2 production, it is only about one-and-a-half year (three production seasons). Consequently, the study findings imply the supply of water to be enhanced through better water infrastructure for both seasons. Moreover, the area under season 2 is continuously declining to the point where the government has to make sure that farmers are able to cultivate the same area for rice production by providing uninterrupted supply of critical inputs, particularly water, seed and fertilizers.

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>

scholarly journals The spatial integration of potato wholesale markets of Uttarakhand in India

2017 ◽  
Vol 14 (2) ◽  
pp. 20-30 ◽  
Author(s):  
A Kumar ◽  
R Mishra
Keyword(s):  
Wholesale Price ◽  
Likelihood Method ◽  
Spatial Integration ◽  
Market Information ◽  
Demand And Supply ◽  
Vector Error Correction ◽  
Vector Error ◽  
Long Run ◽  
Short Run ◽  
Price Demand

This paper analyzes the spatial integration of potato markets in Uttarakhand using monthly wholesale price for ten years. The maximum likelihood method of cointegration developed by Johansen (1988) was used in the study. The dynamics of short-run price responses were examined using vector error correction model (VECM). The results indicated that five potato markets reacted on the long-run cointegrating equations while the speed of price adjustment in the short-run was almost absent. Moreover, it was found that the longer the distance between the markets, the weaker the integration was. To increase the efficiency of potato markets in Uttarakhand, there is need to focus on building an improved market information system. This system should be able to disseminate timely market information about price, demand and supply of produce to enable producers, traders and consumers to make proper production and marketing decisions.SAARC J. Agri., 14(2): 20-30 (2016)

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