The role of savings rate in exchange rate and trade imbalance nexus: Cross-countries evidence

Yi-Bin Chiu and Chia-Hung Sun ()

Economic Modelling, 2016, vol. 52, issue PB, 1017-1025

Abstract: Will a higher savings rate improve a country's trade imbalance? Using data for 76 countries for the period 1975–2010, we examine the relationship between trade balance, savings rate, and real exchange rate. To address the potential non-linear effects of the savings rate, we use the panel smooth transition regression (PSTR) model with instrumental variables. Our results indicate that countries with a savings rate above the threshold of 14.8% can improve their trade balance by increasing the savings rate or depreciating their currency. Even though the sample is divided into two groups on the basis of income level, the empirical results vary little, suggesting that our findings are robust to the data separation.

Keywords: Trade balance; Savings rate; Real exchange rate; Panel smooth transition regression (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:52:y:2016:i:pb:p:1017-1025

DOI: 10.1016/j.econmod.2015.10.040

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