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Sources of time-varying trade balance and real exchange rate dynamics in East Asia

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  • Rafiq, Sohrab

Abstract

A sticky-price model with minimal assumptions for identification is used to motivate a time-varying model that allows for state dependent innovations to explore the trade balance dynamics of a group of East Asian economies. This paper shows that the correlation between the trade balance and the real exchange has historically been highly conditional on the type of macroeconomic shock. Permanent (transitory) shocks have historically produced a positive (negative) correlation between the trade balance and real exchange rate over the last 20years. Second, since the Asian financial crisis the real exchange rate dynamics of the East Asian countries have been dominated by persistent component(s), while the dynamics of the trade balance have been more influenced by transitory factors.

Suggested Citation

  • Rafiq, Sohrab, 2013. "Sources of time-varying trade balance and real exchange rate dynamics in East Asia," Journal of the Japanese and International Economies, Elsevier, vol. 29(C), pages 117-141.
    • Handle: RePEc:eee:jjieco:v:29:y:2013:i:c:p:117-141
    DOI: 10.1016/j.jjie.2013.06.001
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    Cited by:

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    3. Thanh Dinh Su & Canh Phuc Nguyen, 2021. "Twin balances, public governance and private investment: Quantile estimation for OECD countries," International Economics, CEPII research center, issue 165, pages 85-93.
    4. Hegerty Scott W., 2022. "Time-series dynamics of Baltic trade flows: Structural breaks, regime shifts, and exchange-rate volatility," Journal of Economics and Management, Sciendo, vol. 44(1), pages 96-118, January.

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    More about this item

    Keywords

    Exchange rate; Trade balance; Time-variation; Correlation; Asia;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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