Product-level analysis of relationship between Czech koruna and Czech foreign trade

Abstract

Paper is aimed to evaluate effects of exchange rates on the Czech bilateral trade divided into product categories. Paper assumes that different traded product categories are characterized by different price elasticity and every market consists of different consumer and producer behavior patterns, so the study applies territorial and commodity approach to foreign trade disaggregation. Long term effects are assessed by Johansen cointegration and short term effects by vector error correction model. Analysis for the period 1999 -2014 on the SITC 1 and 2 digit data shows that bilateral and majority of commodity trade balances are cointegrated with bilateral exchange rate.