Trade balance and the real exchange rate: an analysis of cointegration

João Marcus Marinho Nunes ()

Brazilian Journal of Political Economy, 1994, vol. 14, issue 1, 57-67

Abstract: This paper utilizes the methodology of co-integration to test the theoreticalproposition that there is a long run relationship between the trade balance and the real exchangerate. Several of the commonly used definitions of the real exchange rate were testedbut none showed co-integration with the trade balance. The only measure of the real exchangerate that was co-integrated with the trade balance was the one defined by the relativeprice of tradeables and non-tradeables. The evidence is not inconsistent with the observationthat the direction of causality runs from the real exchange rate to the trade balance. JEL Classification: F14.

Keywords: Trade balance; real exchange rate (search for similar items in EconPapers)
Date: 1994
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