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The Roles of Vehicle Currency and Real Effective Exchange Rates in the Trade of Every ASEAN Member With the EU-28

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  • Ho Hoang Gia Bao
  • Hoang Phong Le

Abstract

A common limitation of the studies on the exchange rate-trade balance linkage is ignoring the USD’s role as a vehicle currency. Some recent papers have recognized this gap and proposed a hypothesis that the neglection of the USD’s role as a vehicle currency can restrict the significance of findings. This study aims to test that hypothesis in the trade between each of the 10 countries in ASEAN (Association of Southeast Asian Nations) with the whole EU-28. Specifically, this paper is the first to examine how the vehicle currency USD’s exchange rates, along with the real effect exchange rates, asymmetrically impact the trade balance of each ASEAN country with the EU-28 by employing the NARDL method to investigate whether the ignorance of the USD leads to fewer significant coefficients of exchange rates. The results indicate that the vehicle currency model (VCER) outperforms the real effective exchange rate (REER) model, which supports the hypothesis. In addition, the results are robust when controlling for the role of exchange rate volatility.

Suggested Citation

  • Ho Hoang Gia Bao & Hoang Phong Le, 2022. "The Roles of Vehicle Currency and Real Effective Exchange Rates in the Trade of Every ASEAN Member With the EU-28," SAGE Open, , vol. 12(2), pages 21582440221, April.
    • Handle: RePEc:sae:sagope:v:12:y:2022:i:2:p:21582440221091715
    DOI: 10.1177/21582440221091715
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    References listed on IDEAS

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    1. Rose, Andrew K. & Yellen, Janet L., 1989. "Is there a J-curve?," Journal of Monetary Economics, Elsevier, vol. 24(1), pages 53-68, July.
    2. Tarlok Singh, 2004. "Testing J-curve hypothesis and analysing the effect of exchange rate volatility on the balance of trade in India," Empirical Economics, Springer, vol. 29(2), pages 227-245, May.
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    Cited by:

    1. Sherina Rafidah Khairunnisa & Siskarossa Ika Oktora, 2023. "Could Renewable Energy Use Boost Goods Export Performance in ASEAN?," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 69, pages 146-162, December.

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