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The Effects of Exchange Rate Change on the Trade Balance in Croatia


  • Tihomir P Stucka


A reduced-form model approach was used to estimate the trade balance response to permanent domestic currency depreciation. For this purpose, long-run and short-run effects were estimated, using three modeling methods along with two real effective exchange rate measures. On average, a 1 percent permanent depreciation improves the equilibrium trade balance by between 0.94 percent and 1.3 percent. The new equilibrium is established after approximately 2.5 years. Evidence of the J-curve is also found. Overall, in the light of the results obtained, it is questionable whether permanent depreciation is desirable to improve the trade balance, taking into account potential adverse effects on the rest of the economy.

Suggested Citation

  • Tihomir P Stucka, 2004. "The Effects of Exchange Rate Change on the Trade Balance in Croatia," IMF Working Papers 04/65, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:04/65

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    References listed on IDEAS

    1. Mohsen Bahmani-Oskooee & Tatchawan Kantipong, 2001. "Bilateral J-Curve Between Thailand and Her Trading Partners," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 26(2), pages 107-117, December.
    2. Mohsen Bahmani-Oskooee, 2001. "Nominal and real effective exchange rates of middle eastern countries and their trade performance," Applied Economics, Taylor & Francis Journals, vol. 33(1), pages 103-111.
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    Cited by:

    1. Muzammil, Muhammad, 2015. "Impact of Financial Development on Trade Balance: An ARDL Cointegration and Causality Approach for Pakistan," MPRA Paper 68587, University Library of Munich, Germany.
    2. H. Bayram Irhan & Nur Dilbaz Alacahan & Levent Korap, 2011. "An Empirical Model for the Turkish Trade Balance: New Evidence from ARDL Bounds Testing Analyses," Istanbul University Econometrics and Statistics e-Journal, Department of Econometrics, Faculty of Economics, Istanbul University, vol. 14(1), pages 38-61, May.
    3. Hooy, Chee-Wooi & Chan, Tze-Haw, 2008. "Examining Exchange Rates Exposure, J-Curve and the Marshall-Lerner Condition for High Frequency Trade Series between China and Malaysia," MPRA Paper 10916, University Library of Munich, Germany, revised 06 Oct 2008.
    4. repec:sae:globus:v:18:y:2017:i:5:p:1199-1214 is not listed on IDEAS
    5. Shahbaz, Muhammad & Jalil, Abdul & Islam, Faridul, 2010. "Real Exchange Rate Changes and Trade Balance in Pakistan: A Revisit," MPRA Paper 27631, University Library of Munich, Germany.
    6. Muhammad Ahad, 2017. "Impact of Financial Development on Trade Balance: An ARDL Cointegration and Causality Approach for Pakistan," Global Business Review, International Management Institute, vol. 18(5), pages 1199-1214, October.
    7. Daniel S Kanda, 2006. "Credit Flows, Fiscal Policy, and the External Deficit of Bosnia and Herzegovina," IMF Working Papers 06/276, International Monetary Fund.
    8. Goran Vuksic, 2005. "Impact of foreign direct investment on Croatian manufacturing exports," Financial Theory and Practice, Institute of Public Finance, vol. 29(2), pages 131-158.
    9. Chan, Tze-Haw & Hooy, Chee-Wooi, 2010. "China-Malaysia’s Trading and Exchange Rate: Complementary or Conflicting Features?," MPRA Paper 25546, University Library of Munich, Germany.
    10. Fakhri, Hasanov, 2010. "The Impact of Real Effective Exchange Rate on the Non-oil Export: The Case of Azerbaijan," MPRA Paper 29556, University Library of Munich, Germany.
    11. Chan, Tze-Haw & Hooy, Chee-Wooi, 2011. "China-Malaysia’s long run trading and exchange rate: complementary or conflicting?," MPRA Paper 33585, University Library of Munich, Germany.


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