Open AccessResearch On Monetary Neutrality: Evidence From Exchange Rate And Trade Balance Of G-7 Countries
Author(s) -
Doh-Khul Kim
Publication year - 2011
Publication title -
journal of applied business research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.149
H-Index - 22
eISSN - 2157-8834
pISSN - 0892-7626
DOI - 10.19030/jabr.v24i2.1351
Subject(s) - span (engineering) , font , computer science , artificial intelligence , engineering , civil engineering
According to a recent paper by Fisher and Huh (200 2 ), in contrast to a long-run neutrality hypothesis, nominal shocks have long-run effects on a country’s real exchange rate and trade balance. However employing a similar method (VAR) with identical restrictions ( long-run neutrality and short-run recursive hypotheses ), this paper show s that the effects on the real exchange rate are much shorter in this G-7 country study than what Fisher and Huh (2002) contend. Further, the trade balance improves for a short period of time, from which it can conclude there is a shorter existence of the depreciation effect in response to expansionary monetary shocks, which supports the long-run neutrality hypothesis in an open macroeconomic framework .