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Do exchange rate changes have threshold effects on the trade balance? Evidence from Tunisia

Author

Listed:
  • Makrem Ben Doudou

    (University of Monastir)

  • Ridha Nouira

    (University of Monastir)

  • Sami Saafi

    (University of Monastir)

  • Aram Belhadj

    (University of Carthage)

Abstract

The main objective of this paper is to shed new light on the nonlinear relationship between exchange rate changes and trade balance. Different from previous studies, this study applies the threshold regression approach of Hansen (J Econometr 93:345–368, 1999; Econometrica 68:575–603, 2000) to explore whether there exist threshold levels of depreciation (or appreciation) in the exchange rate-trade balance nexus. The approach is implemented using data on bilateral trade between Tunisia and 17 of its major trade partners over the period 1984–2016. The findings of this study confirm a non-linear relationship between exchange rate changes and trade balance in Tunisia. More specifically, the results show that above a certain critical value while dinar appreciation will worsen Tunisia’s trade balance, dinar depreciation will improve it.

Suggested Citation

  • Makrem Ben Doudou & Ridha Nouira & Sami Saafi & Aram Belhadj, 2022. "Do exchange rate changes have threshold effects on the trade balance? Evidence from Tunisia," Economic Change and Restructuring, Springer, vol. 55(1), pages 511-537, February.
    • Handle: RePEc:kap:ecopln:v:55:y:2022:i:1:d:10.1007_s10644-020-09306-4
    DOI: 10.1007/s10644-020-09306-4
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    References listed on IDEAS

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