scholarly journals Autoregressive Distributed Lag Transformation for Exchange Rate and Trade Balance

2022 ◽  
Vol 1 (1) ◽  
Keyword(s):  
Exchange Rate ◽  
Trade Balance ◽  
Distributed Lag ◽  
Autoregressive Distributed Lag

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 The Impact of Exchange Rate on Market Fundamentals: A Case Study of J-curve Effect in Vietnam

2017 ◽  
Vol 9 (1) ◽  
pp. 45 ◽  
Author(s):  
Nguyen Quang My ◽  
Mustafa Sayim ◽  
Hamid Rahman
Keyword(s):  
Exchange Rate ◽  
Error Correction ◽  
Trade Balance ◽  
Short Term ◽  
Correction Model ◽  
Distributed Lag ◽  
Autoregressive Distributed Lag ◽  
J Curve ◽  
Curve Effect

This study examines if there is an equilibrium relationship between gross domestic product (GDP), exchange rate fluctuation and trade balance in long-term and short-term in Vietnam. The results show that the short-term and long-term exchange rate fluctuations impact the trade balance in Vietnam; both ARDL (Autoregressive Distributed Lag) and ECM (Error Correction Model) methodologies implied that exchange rate has a statistically negatively impact on the trade balance. Particularly, Autoregressive distributed lag (ARDL) utilized to test the long -term impact, shows the trade balance deficit becomes worse when the REER (real effective exchange rate) increases. ECM (Error Correction Model) equation based on the long-term cointegration equation and impulse response, reveals that the domestic currency devaluation could not improve the trade balance, indicating that the J-curve effect does not hold on the dong, the currency of Vietnam.

scholarly journals Dollarization in Sierra Leone: Evidence and Some Policy Options

2020 ◽  
Vol 7 (4) ◽  
pp. 160
Author(s):  
Abu Bakarr TARAWALIE ◽  
Amadu JALLOH
Keyword(s):  
Exchange Rate ◽  
Sierra Leone ◽  
Correction Term ◽  
Financial Deepening ◽  
Policy Makers ◽  
Distributed Lag ◽  
Autoregressive Distributed Lag ◽  
Short Run ◽  
Key Policy ◽  
Main Determinants

This study aims to empirically investigate the determinants of dollarization in Sierra. It uses quarterly data from 1992Q1 to 2017Q4 and autoregressive distributed lag Bound Testing technique. Both the long and short run results revealed that inflation, exchange rate depreciation, financial deepening and war dummy were the main determinants of dollarization in Sierra Leone during the study period. The error correction term depicts that 53 percent of any disequilibrium in dollarization will be corrected within a year. A key policy recommendation is that policy makers should implement prudent policies that will ensure broader macroeconomic stability (including price stability and exchange rate stability) as a recipe for de-dollarization in Sierra Leone.

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.

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.

scholarly journals Exchange rate modelling in the development community using the ARDL cointegration approach: The case of emerging markets

2020 ◽  
Vol 10 (2) ◽  
pp. 53-70
Author(s):  
Abdulkader Aljandali ◽  
Christos Kallandranis
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Equilibrium Exchange Rate ◽  
Distributed Lag ◽  
Autoregressive Distributed Lag ◽  
Ex Post ◽  
Long Run ◽  
Equilibrium Exchange ◽  
Exchange Rate Movements ◽  
Exchange Rate Models

Despite rising interest in African economies, there is little prior research on the determinants of exchange rate movements in the region. This paper examines the monthly exchange rates of the country members of the Southern African Development Community (SADC) from 1990 to 2010 inclusive. Long-run equilibrium exchange rate models are established, exchange rate determinants are identified, and ex-post forecasts are generated for a period of 18 months (Sekantsi, 2011). The autoregressive distributed lag (ARDL) cointegration model is used in this paper, given its statistical advantages over commonly, applied cointegration techniques. Findings show that the ARDL method generates accurate forecasts for eight out of 11 sampled exchange rates. In keeping with earlier literature (e.g., Redda & Muzindusti, 2017; Zerihun & Breitenbach, 2017; etc.), findings suggest that the chances of SADC member countries fulfilling the requirements of a currency union are quite low. This paper marks one of the first attempts in the literature to forecast exchange rates in SADC using the ARDL approach (Pesaran & Shin, 1995). The results would be of interest to policy-makers, researchers and investors.

scholarly journals DYNAMIC EFFECTS OF REMITTANCES ON EXTERNAL RESERVES IN NIGERIA: THE ROLE OF INFLATION AND STRUCTURAL BREAKS

2019 ◽  
Vol 13 (1) ◽  
pp. 119-141
Author(s):  
E. A. OLUBIYI ◽  
A. RAHEEM ◽  
A. A. ADEMOKOYA
Keyword(s):  
Exchange Rate ◽  
Structural Breaks ◽  
Flexible Exchange Rate ◽  
Jel Classification ◽  
Additional Information ◽  
Distributed Lag ◽  
Autoregressive Distributed Lag ◽  
Long Run ◽  
Floating Exchange Rate ◽  
Short Run

This study provides additional information about the drivers of external reserves in Nigeria.  The result using Autoregressive Distributed Lag (ARDL) model estimation approach for the period 1980-2015 shows that remittances, among other macroeconomic variables, increased external reserves in the short run but weakens it in the long run. Remittances depletes external reserves through its effect on inflation rate and the nonsterilized intervention of the Central Bank.  Furthermore, regime shift to relatively floating exchange rate causes remittances to increase reserves.  From the foregoing, it is important for the authorities to continue operating relatively flexible exchange rate, and curtail excessive spending of remittances.   Keywords: , , , , . JEL Classification: F31, F24, C22, F31  

scholarly journals Nonlinearities and asymmetric adjustment to PPP in an exchange rate model with inflation expectations

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Christina Anderl ◽  
Guglielmo Maria Caporale
Keyword(s):  
Exchange Rate ◽  
Purchasing Power Parity ◽  
Inflation Targeting ◽  
Real Exchange Rates ◽  
Policy Implications ◽  
Inflation Expectations ◽  
Ardl Model ◽  
Content Type ◽  
Distributed Lag ◽  
Autoregressive Distributed Lag

PurposeThis paper aims to explain real exchange rate fluctuations by means of a model including both standard fundamentals and two alternative measures of inflation expectations for five inflation targeting countries (the UK, Canada, Australia, New Zealand and Sweden) over the period January 1993–July 2019.Design/methodology/approachBoth a benchmark linear autoregressive distributed lag (ARDL) model and a nonlinear autoregressive distributed lag (NARDL) specification are considered.FindingsThe results suggest that the nonlinear framework is more appropriate to capture the behaviour of real exchange rates given the presence of asymmetries both in the long and short run. In particular, the speed of adjustment towards the purchasing power parity (PPP) implied long-run equilibrium is three times faster in a nonlinear framework, which provides much stronger evidence in support of PPP. Moreover, inflation expectations play an important role, with survey-based ones having a more sizable effect than market-based ones.Originality/valueThe focus on linearities and the estimation of a NARDL model, which is shown to outperform the linear ARDL model both within sample and out of sample, is an important contribution to the existing literature which has rarely applied this type of framework; the choice of an appropriate econometric method also makes the policy implications of the analysis more reliable; in particular, monetary authorities should aim to achieve a high degree of credibility to manage them and thus currency fluctuations effectively; the inflation targeting framework might be especially appropriate for this purpose.

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