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New Zealand's trade balance: evidence of the J-curve and granger causality

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  • Paresh Kumar Narayan

Abstract

This article tests for the existence of any cointegration relationship between trade balance and real effective exchange rate (REER), foreign income and domestic income for New Zealand during the period 1970-2000. It also examines the direction of the casual relationship between the above variables, and applies the impulse response analysis to determine whether shocks to the REER induce the trade balance to follow a J-curve pattern. The results indicate that there is no cointegration relationship between the above variables; there is a casual connection in both directions between trade balance and foreign income; and New Zealand's trade balance exhibits a J-curve pattern when there is a depreciation of the New Zealand dollar.

Suggested Citation

  • Paresh Kumar Narayan, 2004. "New Zealand's trade balance: evidence of the J-curve and granger causality," Applied Economics Letters, Taylor & Francis Journals, vol. 11(6), pages 351-354.
    • Handle: RePEc:taf:apeclt:v:11:y:2004:i:6:p:351-354
    DOI: 10.1080/1350485042000228187
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    References listed on IDEAS

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    3. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    4. Lal, Anil K. & Lowinger, Thomas C., 2002. "The J-Curve: Evidence from East Asia," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 17, pages 397-415.
    5. Rose, Andrew K. & Yellen, Janet L., 1989. "Is there a J-curve?," Journal of Monetary Economics, Elsevier, vol. 24(1), pages 53-68, July.
    6. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
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