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The dancing of the real exchange rate of US dollar and the US real trade balance

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  • Matiur Rahman
  • Muhammad Mustafa

Abstract

The current study seeks to re-examine a possible long-run dynamic relationship between the trade-weighted real exchange rate of US dollar and US real trade balance by using the well-known cointegration methodology. The sample period includes observations from the second quarter of 1973 through the second quarter of 1992. The unit root test reveals that the trade-weighted real exchange value of dollar and the US real trade balance are individually nonstationary in levels. The ADF test concludes that there is no systematic long-run association between these two variables even under the flexible exchange rate system.

Suggested Citation

  • Matiur Rahman & Muhammad Mustafa, 1996. "The dancing of the real exchange rate of US dollar and the US real trade balance," Applied Economics Letters, Taylor & Francis Journals, vol. 3(12), pages 807-808.
  • Handle: RePEc:taf:apeclt:v:3:y:1996:i:12:p:807-808
    DOI: 10.1080/135048596355646
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    References listed on IDEAS

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    1. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    2. Mahdavi, Saeid & Sohrabian, Ahmad, 1993. "The exchange value of the dollar and the U.S. trade balance: An empirical investigation based on cointegradon and Granger causality tests," The Quarterly Review of Economics and Finance, Elsevier, vol. 33(4), pages 343-358.
    3. Jeremy Greenwood, 1984. "Non-traded Goods, the Trade Balance, and the Balance of Payments," Canadian Journal of Economics, Canadian Economics Association, vol. 17(4), pages 806-823, November.
    4. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    5. Engle, Robert F. & Yoo, Byung Sam, 1987. "Forecasting and testing in co-integrated systems," Journal of Econometrics, Elsevier, vol. 35(1), pages 143-159, May.
    6. Razin, Assaf, 1984. "Capital movements, intersectoral resource shifts and the trade balance," European Economic Review, Elsevier, vol. 26(1-2), pages 135-152.
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    Cited by:

    1. Waliullah & Mehmood Khan Kakar & Rehmatullah Kakar & Wakeel Khan, 2010. "The Determinants of Pakistan’s Trade Balance: An ARDL Cointegration Approach," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 15(1), pages 1-26, Jan-Jun.
    2. Khim-sen Liew & Kian-Ping Lim & Huzaimi Hussain, 2003. "Exchange Rate and Trade Balance Relationship: The Experience of ASEAN Countries," International Trade 0307003, University Library of Munich, Germany.
    3. Dr. Mohammad Alawin & Eman Al-Maghareez, 2013. "Factors Affecting Trade Balance, The Case Of Jordan," Far East Journal of Psychology and Business, Far East Research Centre, vol. 11(3), pages 33-49, May.

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