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Nonlinear Asymmetric Effects of Devaluation on Trade Balance: A Case Study of Iran and South Korea

Author

Listed:
  • Ebrahimi , Maryam

    (Department of Economics, Science and Research Branch, Islamic Azad University)

  • Hojabr Kiani , Kambiz

    (Depaertment of Economics, Shahid Beheshti University)

  • Memarnejad , Abbas

    (Department of Economics, Science and Research Branch, Islamic Azad University)

  • Ghaffari , Farhad

    (Department of Economics, Science and Research Branch, Islamic Azad University)

Abstract

The present paper analyzes the existence of a long-run relationship between the trade balance and exchange rate of Iran and South Korea by a new approach. It proposes an asymmetric co-integrating NARDL model by two positive and negative partial sum decompositions which can use mixed I (0) and I (1) variables by bounds testing approach. The proposed tests are based on calculated F –statistics and Error Correction Model (ECM) used to test the importance of the lagged levels of variables in an equilibrium correction model. Non-Linear ARDL approach has employed to study the reaction of the trade balance to currency devaluation. The bounds test of the NARDL model implies the presence of cointegration among the variables. Our empirical findings demonstrate that currency devaluation has asymmetric effects on the trade balance of Iran and South Korea by non-linear modeling. Furthermore, the J-curve phenomenon is not supported in this case.

Suggested Citation

  • Ebrahimi , Maryam & Hojabr Kiani , Kambiz & Memarnejad , Abbas & Ghaffari , Farhad, 2018. "Nonlinear Asymmetric Effects of Devaluation on Trade Balance: A Case Study of Iran and South Korea," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 13(1), pages 51-61, January.
    • Handle: RePEc:mbr:jmonec:v:13:y:2018:i:1:p:51-61
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    References listed on IDEAS

    as
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    4. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
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    7. Katrakilidis, Constantinos & Trachanas, Emmanouil, 2012. "What drives housing price dynamics in Greece: New evidence from asymmetric ARDL cointegration," Economic Modelling, Elsevier, vol. 29(4), pages 1064-1069.
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    Cited by:

    1. Jungho Baek, 2023. "Oil Prices, World Trade Policy Uncertainty, and the Trade Balance: The Case of Korea," Commodities, MDPI, vol. 2(3), pages 1-13, June.

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    More about this item

    Keywords

    Non-linear Modeling; Bilateral Trade Balance; Devaluation Currency;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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