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The role of asymmetry in the interplay between internal and external factors: Empirical evidence from the US, Brazil, Canada and Mexico

Author

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  • Kaya Tokmakcioglu

    (Faculty of Management Engineering, Department of Management Engineering, Istanbul Technical University. Macka Campus, 34343 Besiktas, Istanbul, Turkey)

  • Oguzhan Ozcelebi

    (Faculty of Economics, Department of Economics, Istanbul University. Beyazit Campus, 34542 Beyazit, Istanbul, Turkey)

  • Ali Sezin Ozdemir

    (Faculty of Management Engineering, Department of Management Engineering, Istanbul Technical University. Macka Campus, 34343 Besiktas, Istanbul, Turkey)

Abstract

In this study, the real economic activity and monetary policy in the US are examined in comparison with the foreign trade balance and exchange rates, using Qual VAR and nonlinear VAR models. We found that the foreign trade with Brazil, Canada and Mexico do not lead to a possible recession in the US. The value of the domestic currency of Brazil, Canada and Mexico against the US dollar does not contribute to a possible recession over the foreign exchange market. We also show that a contraction in the US economy and contractionary monetary policy will lead to the appreciation of the US dollar by leading to capital inflows. Although the shadow interest rate may have asymmetric effects on the foreign trade balance with Canada and USD/CAD, we find that the foreign trade balance with Mexico and USD/MXN will be affected positively/negatively by an increase/decrease in the shadow interest rate.

Suggested Citation

  • Kaya Tokmakcioglu & Oguzhan Ozcelebi & Ali Sezin Ozdemir, 2019. "The role of asymmetry in the interplay between internal and external factors: Empirical evidence from the US, Brazil, Canada and Mexico," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics and Business, vol. 37(1), pages 55-75.
    • Handle: RePEc:rfe:zbefri:v:37:y:2019:i:1:p:55-75
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    More about this item

    Keywords

    shadow interest rate; exchange rate; foreign trade balance; Qual VAR; non-linear VAR;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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