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Trade balance and the real exchange rate: an analysis of cointegration

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  • João Marcus Marinho Nunes

Abstract

This paper utilizes the methodology of co-integration to test the theoreticalproposition that there is a long run relationship between the trade balance and the real exchangerate. Several of the commonly used definitions of the real exchange rate were testedbut none showed co-integration with the trade balance. The only measure of the real exchangerate that was co-integrated with the trade balance was the one defined by the relativeprice of tradeables and non-tradeables. The evidence is not inconsistent with the observationthat the direction of causality runs from the real exchange rate to the trade balance. JEL Classification: F14.

Suggested Citation

  • João Marcus Marinho Nunes, 1994. "Trade balance and the real exchange rate: an analysis of cointegration," Brazilian Journal of Political Economy, Center of Political Economy, vol. 14(1), pages 57-67.
    • Handle: RePEc:ekm:repojs:v:14:y:1994:i:1:p:57-67:id:1269
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    Keywords

    Trade balance; real exchange rate;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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