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Examining the relationship between trade balance and exchange rate: the case of China's trade with the USA

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  • Paresh Kumar Narayan

Abstract

In this paper, we investigate the nexus between China's trade balance and the real exchange rate vis-a-vis the USA. Using the bounds testing approach to cointegration, we find evidence that China's trade balance and real exchange rate vis-a-vis the USA are cointegrated, and using the autoregressive distributed lag model we find that in both the short run and the long run a real devaluation of the Chinese RMB improves the trade balance; as a result, there is no evidence of a J-curve type adjustment.

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  • 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.
    • Handle: RePEc:taf:apeclt:v:13:y:2006:i:8:p:507-510
    DOI: 10.1080/13504850500400488
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    References listed on IDEAS

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    1. Matiur Rahman & Muhammad Mustafa & Daryl Burckel, 1997. "Dynamics of the yen-dollar real exchange rate and the US-Japan real trade balance," Applied Economics, Taylor & Francis Journals, vol. 29(5), pages 661-664.
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