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Trade Balance Dynamics and Exchange Rates: In Search of the J-Curve Using a Structural Gravity Approach

Author

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  • Harald Badinger

    (Department of Economics, WU (Vienna University of Economics and Business))

  • Aurelien Fichét de Clairfontaine

    (Department of Economics, WU (Vienna University of Economics and Business))

Abstract

This paper uses a structural gravity approach, specifying currency movements as trade cost component to derive an empirical trade balance model, which incorporates multilateral resistance terms and accounts for the cross-country variation in the exchange rate pass-through into import and export prices. The model is estimated using quarterly bilateral trade flows between 47 countries over the period 2010Q1-2017Q2, disaggregated into 97 commodity groups. Our results support the existence of an ``aggregate'' J-curve, pooled over commodity groups; at the same time they point to considerable heterogeneity in the trade balance dynamics across industries below the surface of aggregate data.

Suggested Citation

  • Harald Badinger & Aurelien Fichét de Clairfontaine, 2018. "Trade Balance Dynamics and Exchange Rates: In Search of the J-Curve Using a Structural Gravity Approach," Department of Economics Working Papers wuwp256, Vienna University of Economics and Business, Department of Economics.
    • Handle: RePEc:wiw:wiwwuw:wuwp256
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    16. Mohsen Bahmani-Oskooee & Tatchawan Kanitpong, 2017. "Do exchange rate changes have symmetric or asymmetric effects on the trade balances of Asian countries?," Applied Economics, Taylor & Francis Journals, vol. 49(46), pages 4668-4678, October.
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    Cited by:

    1. Neary, Peter & Carrère, Céline & Mrázová, Monika, 2020. "Gravity without Apologies: The Science of Elasticities, Distance, and Trade," CEPR Discussion Papers 14473, C.E.P.R. Discussion Papers.
    2. Céline Carrère & Monika Mrázová & J Peter Neary, 2020. "Gravity Without Apology: the Science of Elasticities, Distance and Trade," The Economic Journal, Royal Economic Society, vol. 130(628), pages 880-910.
    3. Adedoyin Isola Lawal & Afees Adebare Salisu & Abiola John Asaleye & Ezeikel Oseni & Bukola Bose Lawal-Adedoyin & Samuel Olatunde Dahunsi & Emmanuel Oluwasola Omoju & Abigail Oyeronke DickTonye & Eliza, 2022. "Economic Growth, Exchange Rate and Remittance Nexus: Evidence from Africa," JRFM, MDPI, vol. 15(6), pages 1-13, May.

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    More about this item

    Keywords

    Exchange Rate Variations; Gravity; J-curve; Trade Balance;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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