THE IMPACT OF EXCHANGE RATE FLUCTUATION ON TRADE BALANCE IN SHORT AND LONG RUN

Tuyet Trinh Pham
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Tuyet Trinh Pham: Banking University of Hochiminh City Vietnam

No 23, Working Papers from Development and Policies Research Center (DEPOCEN), Vietnam

Abstract: This study shows the short and long-run impact of exchange rate on trade balance in Vietnam. Following a depreciation of real exchange rate, trade balance initially deteriorates. Trade balance will improve after four quarters and new equilibrium will be set after twelve quarters. Autoregressive distributed lag (ADRL) are used to explore long-run impact, showing trade balance improvement when real exchange rate depreciates. Corresponding error correction model (ECM) based on long-run cointegration equation indicates immediate deterioration of trade balance after a depreciation. Impulse response functions based ECM exhibit J-curve pattern of trade balance when there is a permanent depreciation.

Keywords: exchange rate and trade balance; autoregressive distributed lag; J-curve (search for similar items in EconPapers)
Pages: 14 pages
Date: 2012
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Citations: View citations in EconPapers (2)

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