The traditional way of assessing the impact of currency depreciation on the trade balance has been to estimate the elasticity of trade volume to relative prices. To this end, most previous studies used aggregate trade data. To avoid aggregation biases potentially hidden in aggregate data, recent studies have relied on bilateral trade data. Since import and export price data is not available on bilateral level, this study proposes an alternative way of assessing the impact of currency depreciation on bilateral trade flows. The models are applied between the US and her 19 industrial trading partners using recent advances in time-series modeling.
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