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Asymmetric Effects of Exchange Rate Changes on British Bilateral Trade Balances

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  • BAHMANI-OSKOOEE, Mohsen
  • HALICIOGLU, Ferda
  • GHODSI, Seyed Hesam

Abstract

This research presents first empirical time series evidence of the asymmetric impact of exchange rate changes on Britain’s trade balances with her 8 trading partners. Recent advances in time series and cointegration analysis have allowed for the estimation of the nonlinear effects of currency depreciations on countries’ trade balances. To this extent, we employ the nonlinear version of the Autoregressive Distributed Lag (ARDL) approach to cointegration and error correction methodologies to examine whether pound appreciations affect trade differently than do pound depreciations. We use monthly trade data which runs from 1998M1 to 2015M11 to capture more robustly the asymmetric impacts of exchange rate changes on trade balances. Econometric results from the non-ARDL procedures reveal that there exist long-run relationships in the case of UK-Canada, UK-Germany, UK-Italy, UK-Japan, UK-Korea, and UK-US trade balance models. Nevertheless, we did not find any long-run relationship in the case of UK-Spain and UK-Norway trade balance models. We also present empirical evidence for the existence of long-run asymmetries of exchange rates in the case of UK-Germany, UK-Italy, UK-Korea, and UK-Japan trade balance models. This paper also discusses policy implications of the empirical results as well as offering policy recommendations.

Suggested Citation

  • BAHMANI-OSKOOEE, Mohsen & HALICIOGLU, Ferda & GHODSI, Seyed Hesam, 2016. "Asymmetric Effects of Exchange Rate Changes on British Bilateral Trade Balances," MPRA Paper 73477, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:73477
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    File URL: https://mpra.ub.uni-muenchen.de/73477/1/MPRA_paper_73477.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    International trade; Exchange rates; Asymmetry; Nonlinear Cointegration;

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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