DO EXCHANGE RATE CHANGES HAVE SYMMETRIC OR ASYMMETRIC EFFECTS ON INTERNATIONAL TRADE INTEGRATION?

This paper investigates whether exchange rate changes have symmetric or asymmetric effects on international trade integration, using quarterly time series data from 1980: Q1 till 2018: Q2. The recent innovation in cointegration techniques allows us to estimate nonlinear effects. We apply both linear...

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Bibliographic Details
Published in:Annals of financial economics 2019-09, Vol.14 (3), p.1950013
Main Authors: RAJPUT, SURESH KUMAR OAD, GHUMRO, NIAZ HUSSAIN, ANJUM, NADIA
Format: Article
Language:English
Subjects:
Appreciation
Asymmetry
Economic models
Foreign exchange rates
Innovations
International trade
Meaning
Money
Robustness
Time series
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Summary:This paper investigates whether exchange rate changes have symmetric or asymmetric effects on international trade integration, using quarterly time series data from 1980: Q1 till 2018: Q2. The recent innovation in cointegration techniques allows us to estimate nonlinear effects. We apply both linear autoregressive distributed lags (ARDL) and nonlinear ARDL models. The empirical results indicate that asymmetric relationship exists between exchange rate (REER) and international trade integration (ITI) in the short-run as well as in the long-run, meaning that real effective exchange rate has negative and statistically significant effects on international trade integration. Robustness checks indicate no role of various crisis including GFC on the relationship between ITI and REER, however, regime change has significantly negative impact in short-run and positive in long-run on ITI. The results are important because when we separate currency appreciation from the depreciation, it has the significant and different effects on international trade integration.
ISSN:2010-4952
2010-4960
DOI:10.1142/S2010495219500131