Asymmetric Effects of Exchange Rate Changes on the Foreign Trade of Czechia

Previous studies of the effects of exchange rate changes on Czechia’s trade balance have assumed symmetric effects on the trade balance or assumed its linear adjustment. The aim of this article is to evaluate the asymmetric effects of the CZK/EUR exchange rate on the most important segment of Czechia’s foreign trade. The period from 1999 to 2014 was analyzed, and the data was disaggregated according to trading partner and product category. The results of the study show that exchange rate comovement with partial trade balances is mostly confirmed by employing both applied approaches. However, the asymmetry cointegration approach, which introduces nonlinearity into the model, reveals a more significant impact of the exchange rate on commodity trade between Czechia and its most important trading partners than a more standard model that imposes symmetry. Furthermore, distinguishing between depreciation and appreciation showed that the effects at the industry level are, in fact, asymmetrical in most industries when assessing Czechia’s bilateral trade with its most important trading partners.