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China–United States trade war: Does devaluation favors China? An application NARDL
Author(s) -
Wahab Salman,
Safi Adnan,
Wahab Zeeshan,
Amin Maaz,
Zhang Xibao
Publication year - 2021
Publication title -
journal of public affairs
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.221
H-Index - 20
eISSN - 1479-1854
pISSN - 1472-3891
DOI - 10.1002/pa.2234
Subject(s) - devaluation , economics , balance of trade , china , exchange rate , short run , international economics , monetary economics , geography , archaeology
The current study aims to investigate the effect of devaluation on a bilateral trade balance between China and the United States. The study uses monthly data for the period 20‐11‐2018, which is seasonally adjusted through the Seasonal Trend Decomposition using Loess (STL) method. The dependent variable used in this study is exports to import ratio, and the independent variable is the exchange rate. The study uses both linear and nonlinear ARDL methodology to trace the long run and short run effect and to trace the asymmetry between exports to imports ratio and exchange rate. Moreover, the long‐run relationship is established through Bound testing approach. The findings favor the devaluation for China trade balance both in the short run and long run. Moreover, the results do not support the existence of J‐curve and indicate that rather than devaluation it is the competitiveness of Chinese goods and services that provide an edge in bilateral trade between China and United States.