EconPapers    
Economics at your fingertips  
 

Nonlinear Effects of Exchange Rate Changes on the South African Bilateral Trade Balance

Bernard Njindan Iyke and Sin-Yu Ho ()

MPRA Paper from University Library of Munich, Germany

Abstract: In testing for the J-curve, previous studies have shown that the trade balance model is better fitted using cointegration and error correction mechanisms. These mechanisms are able to incorporate the short-term deterioration and the long-term improvement of the trade balance – the definition of the J-curve. However, the drawback of the established cointegration and error correction frameworks is that they assume symmetry in the equilibrium adjustment process. Incidentally, studies which have used the linear frameworks have found little support for the J-curve. Since the adjustment process could be nonlinear, a fresh investigation of the J-curve using nonlinear approaches could provide competing evidence. This paper retested the J-curve by using quarterly data for South Africa and her key trade partners (China, Germany, India, Japan, the UK and the US) and found the linear specification to support the J-curve phenomenon in only two cases (India and the US) under relaxed conditions. In contrast, the nonlinear specification supported the J-curve phenomenon in all cases at no cost of serial correlation and functional misspecification. We also found the real exchange rate changes to have significant nonlinear effects on the South African trade balance.

Keywords: Bilateral Trade Balance; J-Curve; Real Exchange Rates; South Africa (search for similar items in EconPapers)
JEL-codes: C22 F31 F32 (search for similar items in EconPapers)
Date: 2016-12
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/81364/1/MPRA_paper_81364.pdf original version (application/pdf)

Related works:
Journal Article: Nonlinear effects of exchange rate changes on the South African bilateral trade balance (2018) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:81364

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().

 
Page updated 2019-04-16
Handle: RePEc:pra:mprapa:81364