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

  • Paresh Kumar Narayan

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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Article provided by Taylor & Francis Journals in its journal Applied Economics Letters.

Volume (Year): 13 (2006)
Issue (Month): 8 ()
Pages: 507-510

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Handle: RePEc:taf:apeclt:v:13:y:2006:i:8:p:507-510
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  1. Swarnjit Arora & Mohsen Bahmani-Oskooee & Gour Goswami, 2003. "Bilateral J-curve between India and her trading partners," Applied Economics, Taylor & Francis Journals, vol. 35(9), pages 1037-1041.
  2. 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.
  3. Kamal Upadhyaya & Dharmendra Dhakal, 1997. "Devaluation and the trade balance: estimating the long run effect," Applied Economics Letters, Taylor & Francis Journals, vol. 4(6), pages 343-345.
  4. Narayan, Paresh Kumar & Narayan, Seema, 2005. "Estimating income and price elasticities of imports for Fiji in a cointegration framework," Economic Modelling, Elsevier, vol. 22(3), pages 423-438, May.
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