College
School of Economics
Department/Unit
Economics
Document Type
Working Paper
Publication Date
2-2024
Abstract
We use five time and frequency domain causality tests to study whether unit labor costs-based real exchange rate depreciations / appreciations caused improvements / deteriorations in the trade balances of ten Eurozone economies, and thus contributed to closing trade imbalances, during 1995-2019. The methods we use deal with the inherent nonlinearity, and structural shifts in the time series. They also take into account asymmetry and regime changes. The non-parametric approach avoids the possible bias associated to the identification strategy. Test results indicate that there is no evidence of such a causal relationship.
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Recommended Citation
Felipe, J., Perez-Montiel, J., & Ozcelebi, Ö. (2024). Do changes in the real exchange rate affect the trade balance? Evidence from European countries. Retrieved from https://animorepository.dlsu.edu.ph/res_aki/195
Keywords
causality tests, effective exchange rate, Europe, unit labor costs
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