Do changes in the real exchange rate affect the trade balance? Evidence from European countries

Authors

Jesus Felipe, De La Salle University, ManilaFollow
Jose Antonio Perez-Montiel, University of the Balearic Islands, SpainFollow
Oguzhan Ozcelebi, Istanbul University, TurkeyFollow

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.

html

Recommended Citation

Felipe, J., Perez-Montiel, J., & Ozcelebi, O. (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/192

Keywords

causality tests, effective exchange rate, Europe, unit labor costs

Upload File

wf_yes