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The relationship between REER and trade flows in the context of the equilibrium exchange rate

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  • Reimo Juks

Abstract

The paper focuses on the time-series analysis of the traditional trade equations. The results from the cointegration, ARDL and Granger causality analyses of trade elasticities cast some doubt on the usefulness of the internal-external balance approach to the equilibrium exchange rate. The long-run impact of the REER on trade flows turned out to be statistically insignificant, being independent of method and specification of the model employed. The latter implies a secondary role for the REER in achieving a sustainable position of external balance.

Suggested Citation

  • Reimo Juks, 2003. "The relationship between REER and trade flows in the context of the equilibrium exchange rate," Bank of Estonia Working Papers 2003-9, Bank of Estonia, revised 11 Nov 2003.
    • Handle: RePEc:eea:boewps:wp2003-09
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    References listed on IDEAS

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    1. Riedel, James, 1988. "The Demand for LDC Exports of Manufactures: Estimates from Hong Kong," Economic Journal, Royal Economic Society, vol. 98(389), pages 138-148, March.
    2. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
    3. Pantula, Sastry G., 1989. "Testing for Unit Roots in Time Series Data," Econometric Theory, Cambridge University Press, vol. 5(2), pages 256-271, August.
    4. Baffes, John & Elbadawi, Ibrahim A. & O'Connell, Stephen A., 1997. "Single-equation estimation of the equilibrium real exchange rate," Policy Research Working Paper Series 1800, The World Bank.
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    Cited by:

    1. Marit Hinnosaar & Hannes Kaadu & Lenno Uuskula, 2005. "Estimating the equilibrium exchange rate of the Estonian kroon," Bank of Estonia Working Papers 2005-2, Bank of Estonia, revised 10 Oct 2005.
    2. Lommatzsch, Kirsten & Silgoner, Maria A. & Ramskogler, Paul, 2016. "Trade in value added: Do we need new measures of competitiveness?," Discussion Papers 52/2016, Deutsche Bundesbank.
    3. Rasmus Kattai, 2005. "EMMA - A Quarterly Model of the Estonian Economy," Bank of Estonia Working Papers 2005-12, Bank of Estonia, revised 12 Dec 2005.

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