Do changes in the real exchange rate affect the trade balance? Evidence from European countries
We use five time and frequency domain causality tests to study whether unit labor costs-based real exchange rate depreciations / appreciations caused improvements / deteriorations in the trade balances of ten Eurozone economies, and thus contributed to closing trade imbalances, during 1995-2019. The...
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| Main Authors: | , , |
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| Format: | text |
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Animo Repository
2024
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| Subjects: | |
| Online Access: | https://animorepository.dlsu.edu.ph/res_aki/192 https://animorepository.dlsu.edu.ph/context/res_aki/article/1194/viewcontent/DLSU_AKI_Working_Paper_Series_2024_02_091__1_.pdf |
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| Institution: | De La Salle University |
| Summary: | We use five time and frequency domain causality tests to study whether unit labor costs-based real exchange rate depreciations / appreciations caused improvements / deteriorations in the trade balances of ten Eurozone economies, and thus contributed to closing trade imbalances, during 1995-2019. The methods we use deal with the inherent nonlinearity, and structural shifts in the time series. They also take into account asymmetry and regime changes. The non-parametric approach avoids the possible bias associated to the identification strategy. Test results indicate that there is no evidence of such a causal relationship. |
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