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Asymmetric response of the US –India trade balance to exchange rate changes: Evidence from 68 industries
Author(s) -
BahmaniOskooee Mohsen,
Saha Sujata
Publication year - 2017
Publication title -
the world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/twec.12521
Subject(s) - economics , cointegration , balance of trade , exchange rate , econometrics , balance (ability) , error correction model , short run , macroeconomics , medicine , physical medicine and rehabilitation
The relationship between the trade balance and the exchange rate continues to attract attention by international economists and has entered into new territory, mostly due to advances in econometric methods. The introduction of asymmetric error‐correction modelling and asymmetric cointegration using the nonlinear ARDL approach of Shin et al. ( Festschrift in Honor of Peter Schmidt: Econometric methods and applications , Springer, 2014, 281) as compared to the symmetric and linear ARDL approach of Pesaran et al. ( Journal of Applied Econometrics , 2001, 16, 289) has led us in a new direction to discover relatively better results. We apply these methods to the bilateral trade balance model of each of the 68 industries that trade between India and the USA . The nonlinear approach not only provides more support to the J‐curve effect, but also yields support in favour of short‐run and long‐run asymmetric effects of exchange rate changes in most of the industries.