The Recent Effects of Exchange Rate on International Trade

Abstract

This paper investigates effects of the real exchange rate and its volatility on trade balance and real GDP using a set of eighteen countries, mainly the OECD developed countries. The paper reports econometric procedures and empirical estimates for major currency-owned large economies and non-major currency-owned countries. One task, for which the elasticities of international trade and real GDP are needed, is developing exchange rate assessments. The study finds that real currency depreciation leads to improvement of trade balance in most of the examined developed countries. But the trade balances after real depreciation of currency do not follow J-curve patterns. With regard to the real exchange rate variability, the evidence is mixed. Similarly, effects of the real currency devaluation on real GDP differ across countries. Also, we observe that major currencyowned countries could have different value-and-volume-effects with non-major currency countries.

The effect of exchange rate movements on trade balance performance in Egypt: Is there a J-curve phenomenon?

“…According to the standard theory of international trade, changes in the exchange rate affects the trade balance (TB) through affecting both of trade value and volume (Andersson and Styf, 2010;Choi, 2017;Lal and Lowinger, 2002). The real depreciation (appreciation) of the country's currency value, other things remain constant, increases (decreases) the competitiveness position of the country's' products (Chiloane, Pretorius, and Botha, 2014).…”

“…Studying this relationship conditional to the sum of the price elasticities of demand for exports and imports is called Marshall-Lerner Condition (Baek, Koo, and Mulik, 2009;Bahmani-Oskooee et al, 2016;Drama, 2010;Masih, Liu and Pervaiz, 2018;Tutuianu, 2015). This approach studies this relationship as a net effect of real exchange rates changes on both prices and volume of traded goods 5 (Ali et al, 2014;Andersson and Styf, 2010;Chiloane et al, 2014;Choi, 2017;Hussain and Bashir, 2012;Lencho, 2013). Figure 1 illustrates the effect of the depreciation of the currency on its TB assuming perfectly elastic supply.…”

“…Hence, the ability of currency devaluation to improve TB depends on the responsiveness of the national income and domestic absorption to the changes in the employment of resources and the terms-of-trade (ToT) regardless of the time horizon (Baek et al, 2009;Choi, 2017;Khalid, 2017).…”

Türkiye’de Reel Döviz Kuru, Enflasyon ve Faiz Oranlarının Dış Ticaret Üzerindeki Etkisi: Simetrik ve Asimetrik Yöntemlerle Analiz

“…Seçili ülkelerin çoğunda kısa dönemde değişkenler arasında anlamlı bir ilişki tespit edilememiştir. Choi (2017), 18 ülkede döviz kuru ve kur oynaklığının dış ticaret dengesine olan etkilerini Engle ve Granger (1987) eşbütünleşme testi ve VECM yöntemleriyle ayrı ayrı analiz etmiş, ABD, İsviçre, Avustralya, İngiltere, Belçika, İtalya, Hollanda, İspanya, G. Kore, Meksika, İsrail ve Hindistan'da bu değişkenler arasında eşbütünleşme olduğunu sonucuna ulaşılmıştır. Katsayı tahminleri sonucundaysa döviz kurlarındaki artışların dış ticaret dengesini; Almanya ve Hollanda'da artırdığı, İsrail, Meksika ve İspanya'da azalttığı belirlenmiştir.…”

Dominant Currency and Value-Added Exports

“…Also, it is argued that changes in the value of dominant currencies can affect the global trade as international prices are set in just a few currencies. Choi (2017) distinguishes the value and volume effects of major currencies which are defined as the currency traded in very liquid markets (Choi, 2010) from those of other currencies. A depreciation of dominant currencies to non-dominant currencies increases imports in the periphery countries with an increase in exports to dominant currency markets, thus leading to an increase in global trade, while an appreciation of dominant currencies negatively impacts global exports and trade.…”