scholarly journals The Determinants of Pakistan’s Trade Balance: An ARDL Cointegration Approach

2010 ◽  
Vol 15 (1) ◽  
pp. 1-26 ◽  
Author(s):  
Waliullah Waliullah ◽  
Mehmood Khan Kakar ◽  
Rehmatullah Kakar ◽  
Wakeel Khan
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Money Supply ◽  
Trade Balance ◽  
Exchange Rate Regime ◽  
Annual Data ◽  
Impulse Response Functions ◽  
Bounds Testing ◽  
Distributed Lag ◽  
Long Run

This article is an attempt to examine the short and long-run relationship between the trade balance, income, money supply, and real exchange rate in the case of Pakistan’s economy. Income and money variables are included in the model in order to examine the monetary and absorption approaches to the balance of payments, while the real exchange rate is used to evaluate the conventional approach of elasticities (Marshall Lerner condition). The bounds testing approach to cointegration and error correction models, developed within an autoregressive distributed lag (ARDL) framework is applied to annual data for the period 1970 to 2005 in order to investigate whether a long-run equilibrium relationship exists between the trade balance and its determinants. Additionally, variance decompositions (VDCs) and impulse response functions (IRFs) are used to draw further inferences. The result of the bounds test indicates that there is a stable long-run relationship between the trade balance and income, money supply, and exchange rate variables. The estimated results show that exchange rate depreciation is positively related to the trade balance in the long and short run, consistent with the Marshall Lerner condition. The results provide strong evidence that money supply and income play a strong role in determining the behavior of the trade balance. The exchange rate regime can help improve the trade balance but will have a weaker influence than growth and monetary policy.

scholarly journals The Real Exchange Rate-Foreign Direct Investment Controversy in South Africa: An Application of ARDL Approach

2017 ◽  
Vol 9 (11) ◽  
pp. 207
Author(s):  
Ahmed Mohamed Dahir ◽  
Fuaziah Mahat ◽  
A. N. Bany-Ariffin ◽  
Nazrul Hisyam Ab Razak
Keyword(s):  
South Africa ◽  
Foreign Direct Investment ◽  
Exchange Rate ◽  
Real Exchange Rate ◽  
Direct Investment ◽  
Trade Openness ◽  
Market Size ◽  
Bounds Testing ◽  
Distributed Lag ◽  
Long Run

This paper examines the relationship between real exchange rate and foreign direct investment. We apply autoregressive distributed lag (ARDL) bounds testing method to estimate short and long-run relationships between the series in South Africa over the period of 1987-2016. The results reveal long-run cointegration relationships among variables are confirmed, implying real exchange rate, domestic market size stimulate the foreign direct investment in the long run. Furthermore, there is significant Granger unidirectional causality foreign direct investment to real exchange rate in short and long run and from market size to trade openness in a short run. This finding further suggests that the exchange rate instability are likely to be substantially harmful to a positive effect of FDI and should be avoided in South Africa.

scholarly journals Exchange rate and trade balance: J-curve effect

2010 ◽  
Vol 57 (1) ◽  
pp. 23-41 ◽  
Author(s):  
Pavle Petrovic ◽  
Mirjana Gligoric
Keyword(s):  
Exchange Rate ◽  
Trade Balance ◽  
Impulse Response Functions ◽  
Distributed Lag ◽  
Autoregressive Distributed Lag ◽  
Long Run ◽  
J Curve ◽  
Curve Effect ◽  
Short Run ◽  
Current Account Adjustments

This paper shows that exchange rate depreciation in Serbia improves trade balance in the long run, while giving rise to a J-curve effect in the short run. These results add to the already existent empirical evidence for a diverse set of other economies. Both Johansen's and autoregressive distributed lag approach are respectively used giving similar long-run estimates showing that real depreciation improves trade balance. Corresponding errorcorrection models as well as impulse response functions indicate that, following currency depreciation, trade balance first deteriorates before it later improves, i.e. exhibiting the J-curve pattern. These results are relevant for policy making both in Serbia and in a number of other emerging Europe countries as they face major current account adjustments after BoP crises of 2009.

scholarly journals Asymmetric Effects of Real Exchange Rate on Trade Balance in Cote d’Ivoire: Evidence from Nonlinear ARDL Approach

2021 ◽  
Vol 8 (3) ◽  
pp. 9
Author(s):  
Yaya KEHO
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Cote D'ivoire ◽  
Trade Balance ◽  
Côte D’Ivoire ◽  
Cote D’Ivoire ◽  
Distributed Lag ◽  
Nonlinear Ardl ◽  
Côte D'ivoire ◽  
Long Run

This paper analyses the effects of real exchange rate on the trade balance in Cote d’Ivoire using times series from 1975 to 2017. Although many studies have investigated this issue, most of them assume that this relationship is symmetric. This paper relaxes this assumption employing the nonlinear autoregressive distributed lag (ARDL) model by Shin, Yu and Greenwood-Nimmo (2014). The results show that trade balance responds stronger to negative shocks in real exchange rate than to positive ones in the long-run, while the short-run response of trade balance is symmetric. 

scholarly journals Determinants of Inflation Sources in Iraq: An Application of Autoregressive Distributed Lag (ARDL) Model

2019 ◽  
pp. 381-388
Author(s):  
Mohamed Khaled Al-Jafari ◽  
Hatem Hatef Abdulkadhim Altaee
Keyword(s):  
Exchange Rate ◽  
Money Supply ◽  
Budget Deficit ◽  
Bounds Testing ◽  
Correction Model ◽  
Speed Of Adjustment ◽  
Distributed Lag ◽  
Autoregressive Distributed Lag ◽  
Long Run ◽  
The Impact

Most economists agree that the emergence of substantial inflationary pressure in Iraq was due to the monetary growth arising from large increase in the money supply by government to finance enormous budget deficit. This was true especially during the comprehensive sanction imposed on the country between 1990 till 2003. Others point out to exchange rate depreciations as another cause to inflation. Such controversy about the causes of inflation in Iraq has necessitated studying this phenomenon quantitatively. Our main contribution is to assess empirically the effects of money supply, exchange rate, and import on inflation in Iraq over the period 1995–2015. Using the ARDL bounds testing approach, we estimated the long-run effects of those variables on real inflation. In addition, we attempt to draw attention to the impact of changes in global prices on the phenomenon of inflation in Iraq. It is analyzed that money supply, exchange rate and import, changes inflation to 0.59, -0.85, and 0.11 percent points respectively by one percent rise in long-run. The Error Correction model with a negative sign remained statistically significant with the approximately 34% speed of adjustment to restore the equilibrium in the long-run, which was convergent quickly.

Macroeconomic Determinants of Stock Market Prices in Nepal

2020 ◽  
Vol 2 (1) ◽  
pp. 56-65
Author(s):  
Bhim Prasad Panta
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Stock Market ◽  
Money Supply ◽  
Developing Economies ◽  
Annual Data ◽  
Economic Variables ◽  
Market Prices ◽  
Ardl Model ◽  
Long Run

Background: Stock market plays a crucial role in the financial system of a country. It can be viewed as a channel through which resources are properly channelized. It enables the governments and industry to raise long-term capital for financing new projects. The stock markets of developing economies are likely to be sensitive to various macro-economic factors such as GDP, imports, exports, exchange rates etc., when there is high demand on financial products, as a constituent of financial market, ultimately stock market needs to develop. Many factors can be a signal to stock market participants to expect a higher or lower return when investing in stock and one of these factors are macroeconomic variables and thus, macro-economic variables tend to effect on stock market development. Objective: This study examines the linkage between stock market prices (NEPSE index) and five macro-economic variables, namely; real GDP, broad money supply, interest rate, inflation, and exchange rate using ARDL model and to explain the behavior of the Nepal Stock Exchange Index. Methods: The ECM which is delivered from ARDL model through simple linear transformation to integrate short run adjustments with long run equilibrium without losing long run information. The analysis has been done by using 25 years' annual data from 1994 to 2019. Findings: The result suggests that the fluctuation of Nepse Index in long run is strongly associated with broad money supply, interest rate, inflation, and exchange rate. Conclusion: Though Nepalese stock market is in primitive stage, broad money supply, interest rate, inflation and exchange rate are major factors affecting stock market price of Nepal. So, policies and strategies should be made and directed taking these in to consideration. Implication: The findings of research can be helpful to understand the behavior of Nepalese stock market and develop policies for market stabilization.

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>

ASYMMETRIC IMPACT OF EXCHANGE RATE CHANGES ON THE TRADE BALANCE: DOES GLOBAL FINANCIAL CRISIS MATTER?

2018 ◽  
Vol 13 (04) ◽  
pp. 1850015 ◽  
Author(s):  
BISHARAT HUSSAIN CHANG ◽  
SURESH KUMAR OAD RAJPUT ◽  
NIAZ HUSSAIN GHUMRO
Keyword(s):  
Exchange Rate ◽  
Financial Crisis ◽  
Trade Balance ◽  
Global Financial Crisis ◽  
Sample Period ◽  
Asymmetric Effect ◽  
Distributed Lag ◽  
Long Run ◽  
Exchange Rate Changes ◽  
The Global Financial Crisis

Recent studies have been mainly focusing on whether exchange rate changes have a symmetric or asymmetric effect on the trade balance. We revisit this question in the context of US and further extend previous studies by determining whether the relationship between these underlying variables change as a result of the global financial crisis. We use both linear autoregressive distributed lag (ARDL) and non-linear ARDL models for the whole sample period as well as in the pre- and post-crisis periods. Findings suggest that exchange rate changes have an asymmetric effect on the trade balance; however, the asymmetric behavior of the underlying variables change as a result of the financial crisis. In the short run, exchange rate asymmetrically affects trade balance in the post-crisis period only. In the long run, there is an asymmetric effect for all sample periods, where only the devaluation of currency significantly affects the trade balance when the whole sample period is selected. On the other hand, in pre- and post-crisis periods, only appreciation of currency significantly affects the trade balance. This study indicates that determining the asymmetric relationship without considering the global financial crisis may lead to spurious results.

Real Effective Exchange Rate, Broad Money Supply, and Trade Balance in Vietnam: An Empirical Analysis from Bounds Test to a Cointegration Approach

2020 ◽  
Author(s):  
Kieu Oanh Dao ◽  
V.C. Nguyen ◽  
Si Tri Nhan Dinh
Keyword(s):  
Exchange Rate ◽  
Money Supply ◽  
Trade Balance ◽  
Negative Impact ◽  
Positive Impact ◽  
Real Effective Exchange Rate ◽  
Long Run ◽  
Effective Exchange ◽  
Effective Exchange Rate ◽  
The Impact

This paper aims to investigate the impact of the real effective exchange rate and broad money supply on the trade balance in Vietnam using quarterly data from the first quarter of 2000 to the fourth quarter of 2018. Using the ARDL-ECM approach to investigate this effect, a cointegration relationship exists between real effective exchange rate, broad money supply and trade balance. Results demonstrate that real effective exchange rate has a short-term negative impact on trade balance. Additionally, broad money supply has a positive impact on trade balance in the short run and long run with a very weak effect. Surprisingly, it was found that real foreign income and local income have no impact on trade balance.

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