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Impulse response analysis and Orcutt’s hypothesis in trade

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  • Mohsen Bahmani-Oskooee
  • Esmaeil Ebadi

Abstract

How fast trade flows respond to exchange rate changes versus relative price changes has its own literature in international economics. Indeed, Orcutt (Rev Econ Stat 32:117–132, 1950 ) conjectures that they respond faster to exchange rate changes than to changes in relative prices. Previous studies tested the hypothesis by imposing lag structure on both the exchange rate and relative prices and judged Orcutt’s conjecture by identifying significant lag lengths. In this paper, we rely upon impulse response analysis as an alternative method to test the hypothesis. We find very limited number of cases in which impulse response of trade flows to changes in the exchange rate dies out sooner than the same response to changes in relative prices. Copyright Springer Science+Business Media New York 2015

Suggested Citation

  • Mohsen Bahmani-Oskooee & Esmaeil Ebadi, 2015. "Impulse response analysis and Orcutt’s hypothesis in trade," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 42(3), pages 673-683, August.
    • Handle: RePEc:kap:empiri:v:42:y:2015:i:3:p:673-683
    DOI: 10.1007/s10663-014-9271-1
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    References listed on IDEAS

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    8. Bahmani-Oskooee, Mohsen & Niroomand, Farhang, 1998. "Long-run price elasticities and the Marshall-Lerner condition revisited," Economics Letters, Elsevier, vol. 61(1), pages 101-109, October.
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    Cited by:

    1. Esmaeil Ebadi, 2020. "Comparison of the Marshall-Lerner condition in OECD and Asian countries: new evidence from pooled mean group estimation," Economics Bulletin, AccessEcon, vol. 40(2), pages 1332-1348.
    2. Makram El‐Shagi & William C. Sawyer & Kiril Tochkov, 2022. "The income elasticity of import demand: A meta‐survey," Pacific Economic Review, Wiley Blackwell, vol. 27(1), pages 18-41, February.
    3. Mohsen Bahmani-Oskooee & Nazif Durmaz, 2017. "Evidence on Orcutt's hypothesis using Turkish–US commodity trade," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 26(1), pages 25-44, January.

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    More about this item

    Keywords

    Orcutt’s hypothesis; Industrial countries; Impulse response; Trade flows; F31;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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