Does exchange rate volatility affect the impact of appreciation and depreciation on the trade balance? A nonlinear bivariate approach?
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Exchange rate volatility does affect the impact of appreciation and depreciation on the trade balance, as shown in several studies. Mesagan et al. found that for most African countries, both appreciation and depreciation primarily exert negative impacts on the long-run trade balance, while depreciation has mainly short-run positive effects . Bhat and Bhat, on the other hand, reported no evidence of the J-curve phenomenon in India, where currency appreciation deteriorates the trade balance in the short run . Fofanah's study in West Africa revealed a positive and significant link between exchange rate volatility and the trade balance, suggesting that traders tend to engage more in export activities with an increase in exchange rate volatility . Shen et al. found that in Uganda, real exchange rates, FDI, and gross capital formation have a positive relationship with the trade balance, indicating that Uganda can depreciate the exchange rate to improve its trade balance . Therefore, the impact of exchange rate volatility on the trade balance depends on the specific country and context.
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Open access•Posted Content 1 Citations | The paper does not mention anything about exchange rate volatility or a nonlinear bivariate approach. The paper is about the impacts of exchange rate on Vietnam's trade balance with Japan using industry-level data. |
| The provided paper does not specifically mention a nonlinear bivariate approach to examine the impact of exchange rate volatility on the trade balance. | |
1 Citations | The paper does not specifically address the impact of appreciation and depreciation on the trade balance in the context of exchange rate volatility. |
13 Citations | The provided paper does not mention anything about the impact of exchange rate volatility on the relationship between appreciation/depreciation and the trade balance. |
5 Citations | The provided paper does not specifically mention the impact of exchange rate volatility on the relationship between appreciation/depreciation and the trade balance. |
Related Questions
Does the volatility in the exchange rate have a significant impact on the export of rubber commodities?10 answersThe impact of exchange rate volatility on the export of commodities, including rubber, can be understood through a comprehensive analysis of various studies that have explored the relationship between exchange rate fluctuations and export performance across different countries and commodities. Exchange rate volatility has been shown to have both negative and positive effects on exports, depending on the time horizon (short-run vs. long-run), the economic characteristics of the exporting country, and the nature of the trading relationships.
In the short run, exchange rate volatility tends to suppress export growth, as seen in the case of developed countries and specific commodities exported from Indonesia to the Organisation of the Islamic Cooperation (OIC) member countries. This suppression is attributed to the uncertainty and risk associated with fluctuating exchange rates, which can deter exporters from engaging in international trade due to the potential for reduced profitability. However, the negative short-term impact is not universally significant across all regions and commodities, indicating that some sectors or countries may be more resilient to exchange rate fluctuations.
In the long run, the impact of exchange rate volatility on exports appears to be positive in several cases. This positive relationship suggests that over time, exporters and policymakers may adapt to exchange rate volatility, implementing strategies that mitigate its negative effects and possibly leveraging volatility for competitive advantage in international markets. The long-term improvement in export performance could be due to exporters' increased ability to manage risks associated with exchange rate fluctuations or to structural adjustments in the economy that enhance competitiveness.
Specific studies on the impact of exchange rate volatility on rubber exports were not directly mentioned in the provided contexts. However, the general findings from the research on various commodities and countries indicate that the effect of exchange rate volatility on rubber exports could similarly be influenced by the factors mentioned above. The negative short-term effects and potentially positive long-term effects highlight the complexity of the relationship between exchange rate volatility and exports, suggesting that the impact on rubber exports would likely depend on the specific circumstances of the rubber market, including the elasticity of demand for rubber, the market structure, and the economic policies of the exporting countries.
In conclusion, while the direct impact of exchange rate volatility on rubber exports is not explicitly detailed in the provided contexts, the broader findings suggest that volatility can have both suppressive effects in the short term and potentially positive effects in the long term on exports, including possibly rubber. The actual impact on rubber exports would depend on various factors, including how exporters and policymakers in the rubber industry respond to exchange rate fluctuations.
How does balance of payment theory affect exchange rate?4 answersThe balance of payment theory significantly influences the exchange rate by establishing a causal relationship between the two. Factors such as balance of trade, capital goods, consumption levels, oil prices, and political uncertainty impact both the exchange rate and the balance of payments. The adjustment mechanisms in the balance of payments aim to restore equilibrium when disrupted, either automatically or through discretionary government policies. Additionally, fluctuations in inflation rates, interest rates, and foreign exchange rates affect the stability of the balance of payments, with inflation and foreign exchange rates showing a positive effect while interest rates have a negative impact. Understanding these dynamics is crucial for policymakers, economists, and governments to maintain macroeconomic stability and achieve balanced trade and fiscal policies.
How does the balance of payments affect the exchange rate?4 answersThe balance of payments has a significant impact on the exchange rate. Changes in the balance of payments, which record the payments between a country and the rest of the world, reflect the supply and demand for different currencies and can influence the movements of exchange rates. The exchange rate is affected by factors such as balance of trade and balance of payment, which are components of the balance of payments. The relationship between the exchange rate and the balance of payments is bidirectional, as the exchange rate affects the balance of payments and vice versa. The balance of trade, which measures the imports and exports of a country, also affects the exchange rate. Therefore, changes in the balance of payments, including the balance of trade, can lead to fluctuations in the exchange rate.
How does volatility of the exchange rate affect the economy of a country?5 answersExchange rate volatility has a negative impact on economic growth. Excessive volatility is found to be detrimental to economic growth, as it leads to uncertainty and hampers consumption and investment choices in the short run. The negative effect of exchange rate volatility on economic growth is more pronounced in countries with flexible exchange rate regimes and financial openness. Real effective exchange rate volatility has a significant negative effect on economic growth in Central and Eastern European countries. Exchange rate volatility contributes to inflation volatility, which in turn reduces consumption and savings. Additionally, exchange rate volatility affects business cycles, as output volatility increases with the share of foreign-denominated debt. Therefore, it is important for policymakers to adopt policies that promote exchange rate stability in order to foster economic growth.
How does exchange rate fluctuation affect agricultural exports?5 answersExchange rate fluctuation has a significant impact on agricultural exports. In Egypt, an increase in the exchange rate leads to an increase in the value of agricultural exports. Similarly, in Nigeria, a higher exchange rate is associated with higher agricultural exports in the long run. However, in Turkey, exchange rate volatility has a negative impact on agricultural exports. The impact of exchange rate fluctuation on agricultural exports varies across countries. For example, Brazilian agricultural exports are negatively affected by currency volatility, while Chinese and Honduran exports are positively or not significantly affected. In Pakistan, currency depreciation positively affects both the intensive and extensive margins of agricultural exports. Overall, exchange rate fluctuations can have both positive and negative effects on agricultural exports, depending on the specific country and context.
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