The Impact of Exchange Rate Changes on the Trade Balance in Croatia

Tihomir Stučka

No 11, Working Papers from The Croatian National Bank, Croatia

Abstract: I use a reduced form model approach to estimate the merchandise trade balance response to permanent domestic currency depreciation. For this purpose I estimate the long run and short run effect, using three modeling methods along with two real effective exchange rate measures. On average, a 1% permanent depreciation improves the new trade balance equilibrium between 0.94% and 1.3%. This new equilibrium is established after approximately 2.5 years. I also find support for the J-curve effect. Overall, I doubt that permanent depreciation/devaluation is desirable to improve the trade balance, taking into account potential adverse effects on the rest of the economy.

Keywords: J-curve; trade balance; transitional economies (search for similar items in EconPapers)
JEL-codes: F14 F30 F32 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2003-10
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:hnb:wpaper:11

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