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The trade balance and the real exchange rate

Author

Listed:
  • Enisse Kharroubi

Abstract

Globalisation has affected the relationship between the trade balance and the real exchange rate in two ways. On the one hand, the growth of trade taking place within industries makes the trade balance more sensitive to real exchange movements. On the other hand, a higher degree of vertical specialisation and more global supply chains act to reduce this sensitivity. The relative importance of these two effects varies across countries. According to the estimates presented in this article, changes in the real exchange rate could play a larger role in curbing the US trade deficit than in reducing the Chinese trade surplus. This confirms that real exchange rate adjustment is only part of the solution for global rebalancing, and needs to be accompanied by other policy actions.

Suggested Citation

  • Enisse Kharroubi, 2011. "The trade balance and the real exchange rate," BIS Quarterly Review, Bank for International Settlements, September.
    • Handle: RePEc:bis:bisqtr:1109e
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    References listed on IDEAS

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    4. Meng, Bo & Yamano, Norihiko & Webb, Colin, 2010. "Vertical specialisation indicator based on supply-driven input-output model," IDE Discussion Papers 270, Institute of Developing Economies, Japan External Trade Organization(JETRO).
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    Citations

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    Cited by:

    1. Jonathan Kearns & Nikhil Patel, 2016. "Does the financial channel of exchange rates offset the trade channel?," BIS Quarterly Review, Bank for International Settlements, December.
    2. Martin Mandel & Tran Van Quang, 2017. "Empirická verifikace exportní funkce s akcentem na vliv kurzu české koruny k euru [An Empirical Verification of Export Function Focused on the Impact of EUR/CZK Exchange Rate]," Politická ekonomie, Prague University of Economics and Business, vol. 2017(6), pages 649-668.
    3. Filip Pastucha, 2021. "Analysis of the export and import function of the Czech Republic: aggregate and structural view [Analýza exportní a importní funkce ČR - agregovaný a strukturální pohled]," Český finanční a účetní časopis, Prague University of Economics and Business, vol. 2021(2), pages 5-26.
    4. Joscha Beckmann & Mariarosaria Comunale, 2020. "Exchange rate fluctuations and the financial channel in emerging economies," Bank of Lithuania Working Paper Series 83, Bank of Lithuania.
    5. Zeng, Wendy S. & Johnson, William A., 2023. "Inflation and Trade Deficits in Agriculture and the General Economy: The Role (or Lack Thereof) of Exchange Rate Fluctuations," 2023 Annual Meeting, July 23-25, Washington D.C. 335683, Agricultural and Applied Economics Association.
    6. Joscha Beckmann & Mariarosaria Comunale, 2020. "Exchange rate fluctuations and the financial channel in emerging economies," Bank of Lithuania Working Paper Series 83, Bank of Lithuania.
    7. Rebecca Neumann & Saleh S. Tabrizy, 2021. "Exchange Rates and Trade Balances: Effects of Intra-Industry Trade and Vertical Specialization," Open Economies Review, Springer, vol. 32(3), pages 613-647, July.
    8. Carlos A. Ibarra, 2014. "Trade, investment, and capital flows:Mexico's macroeconomic adjustment to the Great Recession," Working Paper Series Sobre México 2014002, Sobre México. Temas en economía.
    9. Erdal Ozmen & Duygu Yolcu-Karadam, 2014. "Structural Change in Turkish External Trade: Evidence from BEC Sectors," ERC Working Papers 1413, ERC - Economic Research Center, Middle East Technical University, revised Nov 2014.
    10. Sagnik Bagchi & Surajit Bhattacharyya, 2019. "Country-Specific Determinants of Intra-Industry Trade in India," Foreign Trade Review, , vol. 54(3), pages 129-158, August.
    11. Shufeng Cong & Lee Chin & Risidaxshinni Kumarusamy, 2025. "Does trade freedom affect exchange rate movement? A perspective of high-technology trade," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 34(3), pages 552-572, April.
    12. Yilmaz, Sakir Devrim & Ben-Nasr, Sawsen & Mantes, Achilleas & Ben-Khalifa, Nihed & Daghari, Issam, 2025. "Climate change, loss of agricultural output and the macroeconomy: The case of Tunisia," Ecological Economics, Elsevier, vol. 231(C).
    13. repec:prg:jnlcfu:v:2021:y:2021:i:2:id:560 is not listed on IDEAS
    14. repec:ags:aaea22:335683 is not listed on IDEAS

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    More about this item

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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