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Abstract

Literature on international trade has been inconclusive on the matter of exchange rate and its impact on trade. The article finds that for a panel of regions, during the period 1980–2010, the imports in all countries respond to changes in real exchange rate, as predicted in theory. Exports on the other hand exhibit value and volume adjustments. A similar analysis of the bilateral trade shows exchange rate matters for only a few countries, to the extent that they lead to adjustments in exports. These results provide the basis for further analysis of the causes underlying such mechanisms and availability of the possibility of using exchange rate as an instrument to correct imbalances in the external account.

Keywords

Real exchange rate trade balance GDP panel regression bilateral trade

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Trade Balance and the Real Exchange Rate

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