Examining the relationship between trade balance and exchange rate: the case of China's trade with the USA

Paresh Narayan ()

Applied Economics Letters, 2006, vol. 13, issue 8, 507-510

Abstract: In this paper, we investigate the nexus between China's trade balance and the real exchange rate vis-a-vis the USA. Using the bounds testing approach to cointegration, we find evidence that China's trade balance and real exchange rate vis-a-vis the USA are cointegrated, and using the autoregressive distributed lag model we find that in both the short run and the long run a real devaluation of the Chinese RMB improves the trade balance; as a result, there is no evidence of a J-curve type adjustment.

Date: 2006
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DOI: 10.1080/13504850500400488

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