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

Paresh Kumar Narayan

doi:10.1080/13504850500400488

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

Paresh Kumar Narayan

Research output: Contribution to journal › Article › Research › peer-review

65 Citations (Scopus)

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 language	English
Pages (from-to)	507-510
Number of pages	4
Journal	Applied Economics Letters
Volume	13
Issue number	8
DOIs	https://doi.org/10.1080/13504850500400488
Publication status	Published - 20 Jun 2006
Externally published	Yes

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10.1080/13504850500400488

Cite this

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abstract = "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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AB - 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.

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

Abstract

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