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Trade Balance Dynamics and Exchange Rates: In Search of the J-Curve Using a Structural Gravity Approach

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  • Badinger, Harald
  • Fichet de Clairfontaine, Aurélien

Abstract

This paper uses a structural gravity approach, specifying currency movements as trade cost component to derive an empirical trade balance model, which incorporates multilateral resistance terms and accounts for the cross-country variation in the exchange rate pass-through into import and export prices. The model is estimated using quarterly bilateral trade flows between 47 countries over the period 2010Q1-2017Q2, disaggregated into 97 commodity groups. Our results support the existence of an "aggregate" J-curve, pooled over commodity groups; at the same time they point to considerable heterogeneity in the trade balance dynamics across industries below the surface of aggregate data.

Suggested Citation

  • Badinger, Harald & Fichet de Clairfontaine, Aurélien, 2018. "Trade Balance Dynamics and Exchange Rates: In Search of the J-Curve Using a Structural Gravity Approach," Department of Economics Working Paper Series 256, WU Vienna University of Economics and Business.
    • Handle: RePEc:wiw:wus005:5971
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    Cited by:

    1. Céline Carrère & Monika Mrázová & J Peter Neary, 2020. "Gravity Without Apology: the Science of Elasticities, Distance and Trade," The Economic Journal, Royal Economic Society, vol. 130(628), pages 880-910.
    2. Adedoyin Isola Lawal & Afees Adebare Salisu & Abiola John Asaleye & Ezeikel Oseni & Bukola Bose Lawal-Adedoyin & Samuel Olatunde Dahunsi & Emmanuel Oluwasola Omoju & Abigail Oyeronke DickTonye & Eliza, 2022. "Economic Growth, Exchange Rate and Remittance Nexus: Evidence from Africa," JRFM, MDPI, vol. 15(6), pages 1-13, May.
    3. Neary, Peter & Carrère, Céline & Mrázová, Monika, 2020. "Gravity without Apologies: The Science of Elasticities, Distance, and Trade," CEPR Discussion Papers 14473, C.E.P.R. Discussion Papers.

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    More about this item

    Keywords

    exchange rate variations; gravity; J-curve; trade balance;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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