Effects of Exchange Rate Variations on Bilateral Trade with a Vehicle Currency: Evidence from China and Singapore

Yang, Guangpu; Gu, Qingyang

doi:10.2139/ssrn.2564454

Cited by 1 publication

(2 citation statements)

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“…Šimáková (2013) investigated the effects of EUR as a vehicle currency in Hungary-Czechia, Hungary-Poland, and Hungary-UK trade between 1997Q1 and 2012Q2, which revealed different responses of Hungary’s trade balance under the influences of the vehicle currency EUR’s exchange rates and the bilateral exchange rates. Yang and Gu (2016) acknowledged the crucial role of USD as a vehicle currency and discovered that China’s exportation and importation with Singapore were significantly affected by the depreciation of SGD or CNY against the USD during 1993M1 to 2013M12. Nhung et al (2018) found that both the nominal bilateral exchange rate (JPY/VND) and the vehicle currency USD’s exchange rate (USD/VND) had significant impacts on Vietnam’s trade balance with Japan from 2001Q1 to 2017Q3.…”

Section: Literature Reviewmentioning

confidence: 99%

“…While most of the existing literature about the exchange rate-trade balance nexus overlook the role of vehicle currency (Bao & Le, 2021b; Yang & Gu, 2016), a few papers have investigated this problem. Šimáková (2013) investigated the effects of EUR as a vehicle currency in Hungary-Czechia, Hungary-Poland, and Hungary-UK trade between 1997Q1 and 2012Q2, which revealed different responses of Hungary’s trade balance under the influences of the vehicle currency EUR’s exchange rates and the bilateral exchange rates.…”

Section: Literature Reviewmentioning

confidence: 99%

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The Roles of Vehicle Currency and Real Effective Exchange Rates in the Trade of Every ASEAN Member With the EU-28

Bao

2022

SAGE Open

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A common limitation of the studies on the exchange rate-trade balance linkage is ignoring the USD’s role as a vehicle currency. Some recent papers have recognized this gap and proposed a hypothesis that the neglection of the USD’s role as a vehicle currency can restrict the significance of findings. This study aims to test that hypothesis in the trade between each of the 10 countries in ASEAN (Association of Southeast Asian Nations) with the whole EU-28. Specifically, this paper is the first to examine how the vehicle currency USD’s exchange rates, along with the real effect exchange rates, asymmetrically impact the trade balance of each ASEAN country with the EU-28 by employing the NARDL method to investigate whether the ignorance of the USD leads to fewer significant coefficients of exchange rates. The results indicate that the vehicle currency model (VCER) outperforms the real effective exchange rate (REER) model, which supports the hypothesis. In addition, the results are robust when controlling for the role of exchange rate volatility.

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Section: Literature Reviewmentioning

confidence: 99%