The Effects of Exchange Rate Change on the Trade Balance in Croatia

 
Author/Editor: Stucka, Tihomir
 
Publication Date: April 01, 2004
 
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
Summary: A reduced-form model approach was used to estimate the trade balance response to permanent domestic currency depreciation. For this purpose, long-run and short-run effects were estimated, using three modeling methods along with two real effective exchange rate measures. On average, a 1 percent permanent depreciation improves the equilibrium trade balance by between 0.94 percent and 1.3 percent. The new equilibrium is established after approximately 2.5 years. Evidence of the J-curve is also found. Overall, in the light of the results obtained, it is questionable whether permanent depreciation is desirable to improve the trade balance, taking into account potential adverse effects on the rest of the economy.
 
Series: Working Paper No. 04/65
Subject(s): Balance of trade | Croatia | Exchange rate depreciation | Exchange rate adjustments | Transition economies | Trade models | Economic models

Author's Keyword(s): J-Curve | trade balance | transitional economies
 
English
Publication Date: April 01, 2004
ISBN/ISSN: 1934-7073 Format: Paper
Stock No: WPIEA0652004 Pages: 29
Price:
US$15.00 (Academic Rate:
US$15.00 )
 
 
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