Examining the relationship between trade balance and exchange rate: the case of China's trade with the USA

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Abstract

In this paper, we investigate the nexus between China's trade balance and the real exchange rate vis-à-vis the USA. Using the bounds testing approach to cointegration, we find evidence that China's trade balance and real exchange rate vis-à-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.

Original languageEnglish
Pages (from-to)507-510
Number of pages4
JournalApplied Economics Letters
Volume13
Issue number8
DOIs
Publication statusPublished - 20 Jun 2006
Externally publishedYes

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