Cointegration Approach to the Estimation of the Long-Run Relations between Exchange Rates and Trade Balances in Visegrad Countries

Jana Šimáková

Cointegration Approach to the Estimation of the Long-Run Relations between Exchange Rates and Trade Balances in Visegrad Countries

Číslo: 3/2016
Periodikum: Financial Assets and Investing
DOI: 10.5817/FAI2016-3-3

Klíčová slova: cointegration, exchange rate, Marshall-Lerner condition, trade balance, Kointegrace, směnný kurz, stav společnosti Marshall-Lerner, obchodní bilance

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Anotace: The paper deals with the relationship between exchange rates and foreign trade. The aim of this paper is to reveal the long-term effects of the level of exchange rates on the trade balances of the Visegrad Countries. As the different product categories are characterized by different price elasticity, exchange rate uncertainty sensitivity and countries are differentiated by consumer and producer behavior patterns, this paper uses territorial and commodity structuring of foreign trade data. An empirical analysis is performed for the period 1999: Q1-2014: Q3. The effects of exchange rate levels are analyzed by Johansen cointegration analysis to reveal the long-term effects. The approach adopted in this study is found to be an acceptable substitute for testing the Marshall-Lerner condition. Bilateral and majority of partial trade balances are cointegrated with bilateral exchange rate in the long term. Although there are some product categories without proved cointegration, the product categories tending to the long-term equilibrium significantly exceed them. Based on this analysis it can be stated that the bulk of the total and partial bilateral trade balances are characterized by a common long-term development with domestic and foreign GDP and bilateral exchange rates.