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Short-Run versus Long-Run Effects of Devaluation: Error-Correction Modeling and Cointegration

Author

Listed:
  • Mohsen Bahmani-Oskooee

    (University of Wisconsin, Milwaukee)

  • Janardhanan Alse

    (Indiana University, Southeast)

Abstract

After identifying shortcomings associated with most previous studies on the relation between the trade balance and the exchange rate, we reexamine the statistical relation between these two variables by employing the cointegration and error-correction modeling techniques. For most countries considered, we do not find evidence of a long-run relation between the trade balance and the exchange rate. Results from error-correction modeling provide some support for the short-run relation and the J-Curve phenomenon.

Suggested Citation

  • Mohsen Bahmani-Oskooee & Janardhanan Alse, 1994. "Short-Run versus Long-Run Effects of Devaluation: Error-Correction Modeling and Cointegration," Eastern Economic Journal, Eastern Economic Association, vol. 20(4), pages 453-464, Fall.
  • Handle: RePEc:eej:eeconj:v:20:y:1994:i:4:p:453-464
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume20/V20N4P453_464.pdf
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    Keywords

    Devaluation; Exchange Rates;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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