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Trade Balance and the Real Exchange Rate

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  • Suranjali Tandon

Abstract

Literature on international trade has been inconclusive on the matter of exchange rate and its impact on trade. The article finds that for a panel of regions, during the period 1980–2010, the imports in all countries respond to changes in real exchange rate, as predicted in theory. Exports on the other hand exhibit value and volume adjustments. A similar analysis of the bilateral trade shows exchange rate matters for only a few countries, to the extent that they lead to adjustments in exports. These results provide the basis for further analysis of the causes underlying such mechanisms and availability of the possibility of using exchange rate as an instrument to correct imbalances in the external account.

Suggested Citation

  • Suranjali Tandon, 2014. "Trade Balance and the Real Exchange Rate," Foreign Trade Review, , vol. 49(2), pages 117-139, May.
    • Handle: RePEc:sae:fortra:v:49:y:2014:i:2:p:117-139
    DOI: 10.1177/0015732514525222
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    References listed on IDEAS

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    Cited by:

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    7. Works, Richard Floyd, 2016. "Econometric modeling of exchange rate determinants by market classification: An empirical analysis of Japan and South Korea using the sticky-price monetary theory," MPRA Paper 76382, University Library of Munich, Germany.
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    More about this item

    Keywords

    Real exchange rate; trade balance; GDP; panel regression; bilateral trade;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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