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Real Exchange Rate and the Dynamics of Services Trade Balance in the UK: A Linear and Non-linear ARDL Analysis

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  • Trofimov, Ivan D.

Abstract

The study of the services trade balance dynamics following depreciation is a novel topic in international finance literature, with limited empirical research conducted (principally in the US context). This paper examines the relationship between the real exchange rate and the services trade balance in the UK using the quarterly data for the 2005Q1 - 2019Q4 period. We consider the aggregate as well as disaggregated trade across five services categories and employ linear and non-linear autoregressive distributed lag (ARDL) models. The findings indicate little evidence of a long-term improvement in the trade balance following depreciation, and suggest the absence of J-curve effect. The effects of domestic, ‘rest of the world’ GDP and monetary base on the trade balance were respectively negative, positive, and mixed.

Suggested Citation

  • Trofimov, Ivan D., 2020. "Real Exchange Rate and the Dynamics of Services Trade Balance in the UK: A Linear and Non-linear ARDL Analysis," MPRA Paper 106703, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:106703
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    More about this item

    Keywords

    J-curve; cointegration; ARDL; services;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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