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The Effects of Exchange Rate Changes on the External Trade Balance

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  • Ismet Göçer
  • Mehmet Mercan
  • Osman Peker

Abstract

In this study, the relationship between the increases in foreign exchange rates and the balance of trade has been analyzed with panel data considering structural breaks and cross-sectional dependence by using 1980-2011 period data for the transition countries (Poland, Hungary, Bulgaria, Romania) and Turkey by testing for panel cointegration with multiple structural breaks. The existence of cross-sectional dependence among the countries in the panel has been analyzed with CDLM1 adj test and it has been determined that there is a cross-sectional dependence among these countries. It is thought that this dependence is due to the fact that most exports of these countries go to the European Union. Because there is cross-sectional dependence among the countries, a foreign exchange rate or balance of trade shock happening in one of these countries will affect the other countries. Countries should also take into consideration the events in other related countries. (fragment of text)

Suggested Citation

  • Ismet Göçer & Mehmet Mercan & Osman Peker, 2013. "The Effects of Exchange Rate Changes on the External Trade Balance," Ekonomista, Polskie Towarzystwo Ekonomiczne, issue 2, pages 247-258.
    • Handle: RePEc:aoq:ekonom:y:2013:i:2:p:247-258
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