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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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    1. Rose, Andrew K. & Yellen, Janet L., 1989. "Is there a J-curve?," Journal of Monetary Economics, Elsevier, vol. 24(1), pages 53-68, July.
    2. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    3. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    4. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    5. 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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    Cited by:

    1. David Matesanz & Guadalupe Fugarolas, 2009. "Exchange rate policy and trade balance: a cointegration analysis of the Argentine experience since 1962," Applied Economics, Taylor & Francis Journals, vol. 41(20), pages 2571-2582.
    2. Mohsen Bahmani-Oskooee & Salman Huseynov & Rustam Jamilov, 2014. "Is there a J-curve for Azerbaijan? New evidence from industry-level analysis," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 7(1), pages 83-98, March.
    3. Phouphet Kyophilavong & Gazi Salah Uddin & Muhammad Shahbaz, 2016. "The Nexus between Financial Development and Economic Growth in Lao PDR," Global Business Review, International Management Institute, vol. 17(2), pages 303-317, April.
    4. Chia-Hung Sun & Yi-Bin Chiu, 2010. "Taiwan's trade imbalance and exchange rate revisited," Applied Economics, Taylor & Francis Journals, vol. 42(7), pages 917-922.
    5. Huseyin Kalyoncu & Ilhan Ozturk & Seyfettin Artan & Kahraman Kalyoncu, 2009. "Devaluation and trade balance in Latin American countries," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics, vol. 27(1), pages 115-128.
    6. Kyophilavong, Phouphet & Shahbaz, Muhammad & Uddin, Gazi Salah, 2013. "Does J-curve phenomenon exist in case of Laos? An ARDL approach," Economic Modelling, Elsevier, vol. 35(C), pages 833-839.
    7. Drama, Bedi Guy Herve, 2010. "The Effects of Real Exchange Rate on Trade Balance in Cote d’Ivoire: Evidence from the Cointegration Analysis and Error-Correction Models," MPRA Paper 21810, University Library of Munich, Germany.
    8. Fabio Augusto Reis Gomes & Lourenco Senne Paz, 2005. "Can real exchange rate devaluation improve the trade balance? The 1990-1998 Brazilian case," Applied Economics Letters, Taylor & Francis Journals, vol. 12(9), pages 525-528.
    9. repec:agr:journl:v:xxiv:y:2017:i:2(611):p:171-186 is not listed on IDEAS
    10. Paresh Kumar Narayan, 2006. "Examining the relationship between trade balance and exchange rate: the case of China's trade with the USA," Applied Economics Letters, Taylor & Francis Journals, vol. 13(8), pages 507-510.
    11. Chiu, Yi-Bin & Lee, Chien-Chiang & Sun, Chia-Hung, 2010. "The U.S. trade imbalance and real exchange rate: An application of the heterogeneous panel cointegration method," Economic Modelling, Elsevier, vol. 27(3), pages 705-716, May.
    12. Sayeeda Bano & Gazi Hassan, 2018. "An Empirical Examination of the J-Curve: New Zealand's Bilateral Trade with Selected Countries," Working Papers in Economics 18/05, University of Waikato.
    13. Halicioglu, Ferda, 2008. "The bilateral J-curve: Turkey versus her 13 trading partners," Journal of Asian Economics, Elsevier, vol. 19(3), pages 236-243, June.
    14. Yi-Bin Chiu & Chia-Hung Sun, 2009. "Economic interdependence and bilateral trade imbalance across the Taiwan Strait," Journal of Economic Studies, Emerald Group Publishing, vol. 36(4), pages 411-432, September.
    15. Prakash, Kushneel & Maiti, Dibyendu, 2016. "Does devaluation improve trade balance in small island economies? The case of Fiji," Economic Modelling, Elsevier, vol. 55(C), pages 382-393.

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