Real exchange rates, trade balances and nominal shocks: evidence for the G-7

Sources of Fluctuations in the Real Exchange Rates and Trade Balances of the G‐7: A Sign Restriction VAR Approach

“…The long‐run depreciation is statistically significant for all G‐7 countries, although the significance is slightly weaker in Japan and Italy. Farrant and Peersman () and Fisher and Huh (), who did not impose long‐run PPP, reported results supporting the long‐run depreciation of the real exchange rate. This long‐run real depreciation has important implications for the determination of the trade balance.…”

“…Prasad (), Prasad and Gable (), and Fisher and Huh () examine the joint dynamics of real exchange rates and trade balances. The first two papers report that nominal shocks have significant positive long‐run effects on the trade balances of the G‐7 and 23 developed countries.…”

Monetary Policy and the Economy in South Africa

“…Their reason to use the logarithm of the ratio of export to import approach was to reduce the scale and not to destroy the statistical properties of the co-integration equations. They were aware that some authors defined the trade balance as exports minus imports; for example, Kim (2001b) and Fisher and Huh (2002). However, we use the difference between exports and imports, and interpret the information in terms of trade as a percentage of GDP.…”

Identifying Determinants of Germany's International Price Competitiveness

“…Farrant and Peersman (2005), for instance, use sign restrictions introduced by Faust (1998), Uhlig (1999) and Canova and De Nicoló (2002) instead of long-run zero restrictions. Artis and Ehrmann (2000), Fisher and Huh (2002), and Alexius und Post (2005) use a combination of short and long-run restrictions.…”

“…For instance, one could check the robustness of the results by employing the identification scheme of Fisher and Huh (2002), who analyse a VAR of relative output, the real exchange rat and the trade balance with out imposing the restriction of PPP in the long-run in case of nominal shocks. A further possible extension would be to look for changes in the response patterns over time by estimating the model for different sub-sample periods.…”