IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/63216.html
   My bibliography  Save this paper

The real effective exchange rate and trade balance in selected ASEAN countries

Author

Listed:
  • Taguchi, Hiroyuki

Abstract

Exchange rate management has been a hot topic in policy maker and academic circles. The 1997-98 Asian crisis has refocused attention on the exchange rate management of East Asian countries. Most views expressed are critical of the pre-crisis US dollar peg regime, citing it as one cause of the crisis. It is said that this regime caused the appreciation of real effective exchange rates (REERs) and the subsequent loss of competitiveness. This article examines the trend of the REER and its impact on the trade balance during the pre-crisis and post-crisis periods in selected ASEAN countries. The main findings of the study are as follows. First, we found that the REER shows a clear trend of appreciation during the pre-crisis period, whereas it reveals a rather stable movement during the post-crisis period. Second, a Johansen multivariate co-integration analysis verified the existence of a stable long-run correlation between the REER and the trade balance. Third, a simulation analysis showed that the pre-crisis trend of the REER had a clearly negative impact on the trade balance, whereas the post-crisis trend of the REER had a more or less neutral effect on it.

Suggested Citation

  • Taguchi, Hiroyuki, 2009. "The real effective exchange rate and trade balance in selected ASEAN countries," MPRA Paper 63216, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:63216
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/63216/1/MPRA_paper_63216.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    2. Kawai, Masahiro, 2002. "Exchange Rate Arrangements in East Asia: Lessons from the 1997-98 Currency Crisis," Monetary and Economic Studies, Institute for Monetary and Economic Studies, Bank of Japan, vol. 20(S1), pages 167-204, December.
    3. Ronald I. McKinnon, 2002. "After the Crisis, the East Asian Dollar Standard Resurrected: An Interpretation of High-Frequency Exchange Rate Pegging," World Scientific Book Chapters, in: Augustine H H Tan (ed.), Monetary And Financial Management In Asia In The 21st Century, chapter 2, pages 21-77, World Scientific Publishing Co. Pte. Ltd..
    4. Taguchi, Hiroyuki, 1998. "Exchange rate movements and trade balances in selected ASEAN countries," MPRA Paper 63784, University Library of Munich, Germany.
    5. Rose, Andrew K. & Yellen, Janet L., 1989. "Is there a J-curve?," Journal of Monetary Economics, Elsevier, vol. 24(1), pages 53-68, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Taguchi, Hiroyuki, 2003. "The Recent Trend of Real Effective Exchange Rate in Selected East Asian Countries," MPRA Paper 63219, University Library of Munich, Germany.
    2. 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.
    3. Taguchi, Hiroyuki, 2005. "The exchange rate managements in crisis-experienced emerging market economies after the 1990s," MPRA Paper 63788, University Library of Munich, Germany.
    4. 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.
    5. Taguchi, Hiroyuki, 2002. "Exchange rate management in selected East Asian countries after the financial crisis," MPRA Paper 63785, University Library of Munich, Germany.
    6. repec:ipg:wpaper:2014-458 is not listed on IDEAS
    7. Antonis Adam & Margarita Katsimi & Thomas Moutos, 2012. "Inequality and the import demand function," Oxford Economic Papers, Oxford University Press, vol. 64(4), pages 675-701, October.
    8. Zhaoyong Zhang, 1996. "The Exchange Value of the Renminbi and China's Balance of Trade: An Emp irical Study," NBER Working Papers 5771, National Bureau of Economic Research, Inc.
    9. Lal, Anil K. & Lowinger, Thomas C., 2002. "Nominal effective exchange rate and trade balance adjustment in South Asia countries," Journal of Asian Economics, Elsevier, vol. 13(3), pages 371-383.
    10. Rabeya Khatoon & Md Emran Hasan & Md Wahid Ferdous Ibon & Shahidul Islam & Jeenat Mehareen & Rubaiya Murshed & Md Nahid Ferdous Pabon & Md. Jillur Rahman & Musharrat Shabnam Shuchi, 2022. "Aggregation, asymmetry, and common factors for Bangladesh’s exchange rate–trade balance relation," Empirical Economics, Springer, vol. 62(6), pages 2739-2770, June.
    11. Bilgin, Cevat, 2020. "Asymmetric Effects of Exchange Rate Changes on Exports: A Sectoral Nonlinear Cointegration Analysis for Turkey," MPRA Paper 101316, University Library of Munich, Germany.
    12. Arize, Augustine C. & Malindretos, John & Igwe, Emmanuel U., 2017. "Do exchange rate changes improve the trade balance: An asymmetric nonlinear cointegration approach," International Review of Economics & Finance, Elsevier, vol. 49(C), pages 313-326.
    13. 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.
    14. Ananda Weliwita & Hiroshi Tsujii, 2000. "The Exchange Rate and Sri Lanka¡¯s Trade Deficit," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 25(2), pages 131-153, December.
    15. Hossain, Ferdaus, 1995. "Current account determination in the intertemporal framework: an empirical analysis," ISU General Staff Papers 1995010108000011939, Iowa State University, Department of Economics.
    16. Ronald McKinnon & Gunther Schnabl, 2006. "The East Asian Dollar Standard, Fear of Floating, and Original Sin," Chapters, in: Volbert Alexander & Hans-Helmut Kotz (ed.), Global Divergence in Trade, Money and Policy, chapter 3, pages 45-71, Edward Elgar Publishing.
    17. George Georgopoulos, 2008. "The J-curve Revisited: An Empirical Analysis for Canada," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 36(3), pages 315-332, September.
    18. repec:asi:ajoerj:2013:p:605-617 is not listed on IDEAS
    19. Menzie D. Chinn, 2004. "Incomes, Exchange Rates and the US Trade Deficit, Once Again," International Finance, Wiley Blackwell, vol. 7(3), pages 451-469, December.
    20. Linda Akoto & Daniel Sakyi, 2019. "Empirical Analysis of the Determinants of Trade Balance in Post-liberalization Ghana," Foreign Trade Review, , vol. 54(3), pages 177-205, August.
    21. Ganesh S. Mani & Srivyal Vuyyuri, 2003. "Revisiting the Relationship between Real Exchange Rate and Trade Balances," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 34-44.
    22. R. Scott Hacker & Abdulnasser Hatemi‐J, 2004. "The effect of exchange rate changes on trade balances in the short and long run," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(4), pages 777-799, December.

    More about this item

    Keywords

    real effective exchange rate; trade balance; ASEAN;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:63216. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.