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An Empirical Investigation of the Relationship between the Exchange Value of the Pound and the UK Trade Balance

Author

Listed:
  • De Meulemeester, Jean Luc

    (Département d'Économie Appliquée (DULBEA) (Department of Applied Economics) Université Libre de Bruxelles)

  • Rochat, Denis

    (HEC, Department of Management Studies, University of Geneva)

Abstract

In this article we investigate the relationship between the exchange value of the pound and the U.K. trade balance (and its components) for the period running from the second quarter of 1973 to the third quarter of 1989, i.e. roughly the floating rate era from the end of the Bretton Woods System to the entry of the UK in the European Monetary System. Using Johansen cointegration techniques and testing for Granger causality, we find no evidence favouring the Y-Curve hypothesis. Our results are more compatible with the accomodative role of the real exchange rate claimed by the so-called modem theory of trade balance. They suggest that changes in exchange rates are as much a consequence as a cause of trade movements.

Suggested Citation

  • De Meulemeester, Jean Luc & Rochat, Denis, 1995. "An Empirical Investigation of the Relationship between the Exchange Value of the Pound and the UK Trade Balance," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 48(3), pages 347-357.
    • Handle: RePEc:ris:ecoint:0392
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    Cited by:

    1. Kurtović Safet, 2017. "The Effect of Depreciation of the Exchange Rate on the Trade Balance of Albania," Review of Economic Perspectives, Sciendo, vol. 17(2), pages 141-158, June.
    2. Kurtović Safet & Halili Blerim & Maxhuni Nehat, 2017. "Effect of Depreciation of the Exchange Rate on the Trade Balance of Albania," Naše gospodarstvo/Our economy, Sciendo, vol. 63(3), pages 27-36, September.
    3. Huseyin Kalyoncu & Ilhan Ozturk & Seyfettin Artan & Kahraman Kalyoncu, 2009. "Devaluation and trade balance in Latin American countries," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 27(1), pages 115-128.

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