Examining Exchange Rates Exposure, J-Curve and the Marshall-Lerner Condition for High Frequency Trade Series between China and Malaysia

Chee-Wooi Hooy and Tze-Haw Chan (thchan@usm.my)

MPRA Paper from University Library of Munich, Germany

Abstract: Over the last decade, China and Malaysia have committed to export-led growth policy based on maintenance of their undervalued currencies. Both nations had succumbed to pressure of revaluation to de-peg their currency against the USD, the same day in July 2005. This unique scenario motivated us to examine the dynamic nexus of exchange rate impact on bilateral export and import flows between China and Malaysia. Our analysis contributed in using high frequency monthly data for the recent period from January 1990 to January 2008, based on the Autoregressive Distributed Lag (ARDL) bound testing procedure and generalised impulse response analysis. Our empirical findings reveal that the Marshall-Lerner condition holds that real depreciation accelerates trade expansion in the long run but only the short run import demands adhere to the potential J-curve pattern. Domestic and foreign incomes are significant and correctly signed, suggesting that the China-Malaysia exports and imports are determined by demand side effects. In brief, the study supports for the complementary role of China instead of conflicting (competing) features in the China-Malaysia bilateral trading

Keywords: Exchange rates; Trade; J-curve; Marshall-Lerner Condition; ARDL Bounds test (search for similar items in EconPapers)
JEL-codes: C01 F10 F41 (search for similar items in EconPapers)
Date: 2008-08-31, Revised 2008-10-06
New Economics Papers: this item is included in nep-ifn, nep-opm and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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