Exchange rate policy and trade balance. A cointegration analysis of the argentine experience since 1962.

Matesanz Gómez, David and Fugarolas Álvarez-Ude, Guadalupe (2006): Exchange rate policy and trade balance. A cointegration analysis of the argentine experience since 1962. Unpublished.

Abstract

Using multivariate cointegration tests for non-stationary data and vector error correction models, this paper examines the determinants of trade balance for Argentina over the last forty to fifty years. Our investigation confirms the existence of long-run relationships among trade balance, Real Exchange Rate (RER) and foreign and domestic incomes for Argentina during different real exchange rate management policies. Based on the estimations, the Marshall-Lerner condition is examined and, by means of impulse response functions, we trace the effect of a one-time shock to the RER on the trade balance checking the J-curve pattern.

• Item Type: MPRA Paper
• Additional Information: Published in faculty of Economics and Business administration working papers of the University of Oviedo (Spain), submitted to Applied Economics
• Language: English
• Keywords: Argentina; Marshall-Lerner; J-Curve; cointegration and impulse response analysis
• Subjects: C - Mathematical and Quantitative Methods > C2 - Econometric Methods: Single Equation Models; Single Variables > C22 - Time-Series Models; Dynamic Quantile Regressions ; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies; C - Mathematical and Quantitative Methods > C3 - Econometric Methods: Multiple; Simultaneous Equation Models; Multiple Variables; Endogenous Regressors > C32 - Time-Series Models; Dynamic Quantile Regressions; F - International Economics > F3 - International Finance > F31 - Foreign Exchange

References

Bahmani-Oskooee, M. and F. Niroomand (1998) Long-run price elasticities and the Marshall-Lerner condition revisited, Economics Letters, 61, 101-109 Bahmani-Oskooee, M. and A. Ratha (2004) the J-Curve: a literature review, Applied Economics, 36, 1377-1398. Box, G.E.P. and G.M. Jenkins (1970) Times Series Analysis Forecasting and Control, Holden-Day, San Francisco. Charemza W.W. and F.D. Deadman (1962) New Directions in Econometric Practice Brookfiels VT_ Edward Elgar, Dickey, D.A. and W.A. Fuller (1979) Distribution of the estimates for the autorregresive Time series with a Unit Root, Journal of the American Statistical Association, 74, 427- 431. Gomes, F. A. R. and L. S. Paz (2005) Can real exchange rate devaluation improve trade balance? The 1990-1998 Brazilian case, Applied Economics Letters, 12, 525-528. Johansen, S. (1989) Estimation and Hypothesis testing of Cointegration Vectors in Gaussian Vector Autorregresive Models. Econometrica, 59, 1551-1580. Johansen, S. and K. Juselius (1990) Maximum Likelihood Estimation and Inferences on Cointegration-with aplications to the demand for money, Oxford Bulletin of Economics and Statistics, 1990, 52, 169-210. Lopez, J. and A. Cruz (2000) Thirwalls Law and beyond: the Latin American Experience, Journal of Postkeynesian Economics, 22 (3), 477-495. Mahmud, S. F. et al. (2004) Testing Marshall-Lerner condition: a non-parametric approach, Applied Economics Letters, 11, 231-236. MacKinnon, J (1996) Numerical Distribution Functions for the Unit Root and Cointegration Tests, Journal of Applied Econometrics, 11, 601-618. Narayan, P. K. (2004) New Zealand´s trade balance: evidence of the J-Curve and granger causality, Applied Economics Letters, 11, 351-354. Osterwald-Lenum, M. (1992) A note with quantiles of the asymptotic Distribution of the Maximun Likelihood Cointegration Rank Test Statistics Oxford Bulletin of Economics and Sstatistics, 54, 461-474. Perraton, J. (2003) Balance of Payments Constrained Growth and Developing Countries: an examination of Thirlwall´s hypothesis, International Review of Applied Economics, 17, 1, 1-22. Rose, A.K., (1990) Exchange rates and the trade balance: some evidence from developing countries, Economics Letters, 34, 271-275. Rose A.K. and Yellen J.L. (1989) In there a J-curve?, Journal of Monetary Economics, 24, 53-68. Tsen, W. H. (2006) Is there a long-run relationship between trade balance and terms of trade? The case of Malaysia, Applied Economics Letters, 13, 307-311.