Premium
Trade balance dynamics and exchange rates: In search of the J‐curve using a structural gravity approach
Author(s) -
Badinger Harald,
Fichet de Clairfontaine Aurélien
Publication year - 2019
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12426
Subject(s) - economics , commodity , gravity model of trade , currency , exchange rate , aggregate (composite) , econometrics , balance of trade , balance (ability) , point (geometry) , bilateral trade , international economics , macroeconomics , mathematics , finance , law , medicine , materials science , geometry , political science , china , composite material , physical medicine and rehabilitation
This paper uses a structural gravity approach, specifying currency movements as trade cost component to derive an empirical trade balance model, which incorporates multilateral resistance terms and accounts for the cross‐country variation in the exchange rate pass‐through into import and export prices. The model is estimated using quarterly bilateral trade flows between 47 countries over the period 2010Q1 to 2017Q2, disaggregated into 97 commodity groups. Our results support the existence of an “aggregate” J‐curve, pooled over commodity groups; at the same time they point to considerable heterogeneity in the trade balance dynamics across industries below the surface of aggregate data.