Examining the relationship between trade balance and exchange rate: the case of China's trade with the USA
Author(s)
Narayan, Paresh
Griffith University Author(s)
Year published
2006
Metadata
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In this paper, we investigate the nexus between China's trade balance and the real exchange rate vis-a`-vis the USA. Using the bounds testing approach to cointegration, we find evidence that China's trade balance and real exchange rate vis-a`-vis the USA are cointegrated, and using the autoregressive distributed lag model we find that in both the short run and the long run a real devaluation of the Chinese RMB improves the trade balance; as a result, there is no evidence of a J-curve type adjustment.In this paper, we investigate the nexus between China's trade balance and the real exchange rate vis-a`-vis the USA. Using the bounds testing approach to cointegration, we find evidence that China's trade balance and real exchange rate vis-a`-vis the USA are cointegrated, and using the autoregressive distributed lag model we find that in both the short run and the long run a real devaluation of the Chinese RMB improves the trade balance; as a result, there is no evidence of a J-curve type adjustment.
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Journal Title
Applied Economics Letters
Volume
13
Issue
8
Subject
Public Health and Health Services
Applied Economics
Banking, Finance and Investment