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The relationship between REER and trade flows in the context of the equilibrium exchange rate

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  • Reimo Juks

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    Abstract

    The paper focuses on the time-series analysis of the traditional trade equations. The results from the cointegration, ARDL and Granger causality analyses of trade elasticities cast some doubt on the usefulness of the internal-external balance approach to the equilibrium exchange rate. The long-run impact of the REER on trade flows turned out to be statistically insignificant, being independent of method and specification of the model employed. The latter implies a secondary role for the REER in achieving a sustainable position of external balance.

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    File URL: http://www.eestipank.info/pub/en/dokumendid/publikatsioonid/seeriad/uuringud/_2003/_9_2003/wp_903.pdf
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    Bibliographic Info

    Paper provided by Bank of Estonia in its series Bank of Estonia Working Papers with number 2003-9.

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    Length: 20 pages
    Date of creation: 11 Nov 2003
    Date of revision: 11 Nov 2003
    Publication status: published
    Handle: RePEc:eea:boewps:wp2003-09

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    1. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
    2. Baffes, John & Elbadawi, Ibrahim A. & O'Connell, Stephen A., 1997. "Single-equation estimation of the equilibrium real exchange rate," Policy Research Working Paper Series 1800, The World Bank.
    3. Pantula, Sastry G., 1989. "Testing for Unit Roots in Time Series Data," Econometric Theory, Cambridge University Press, vol. 5(02), pages 256-271, August.
    4. Riedel, James, 1988. "The Demand for LDC Exports of Manufactures: Estimates from Hong Kong," Economic Journal, Royal Economic Society, vol. 98(389), pages 138-48, March.
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    Cited by:
    1. Rasmus Kattai, 2005. "EMMA - A Quarterly Model of the Estonian Economy," Bank of Estonia Working Papers 2005-12, Bank of Estonia, revised 12 Dec 2005.
    2. Marit Hinnosaar & Hannes Kaadu & Lenno Uusk├╝la, 2005. "Estimating the equilibrium exchange rate of the Estonian kroon," Bank of Estonia Working Papers 2005-2, Bank of Estonia, revised 10 Oct 2005.

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