The Effects of Exchange Rate Change on the Trade Balance in Croatia

April 1, 2004

Preview Citation

Format: Chicago

Tihomir P Stucka. The Effects of Exchange Rate Change on the Trade Balance in Croatia, (USA: International Monetary Fund, 2004) accessed December 24, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

A reduced-form model approach was used to estimate the trade balance response to permanent domestic currency depreciation. For this purpose, long-run and short-run effects were estimated, using three modeling methods along with two real effective exchange rate measures. On average, a 1 percent permanent depreciation improves the equilibrium trade balance by between 0.94 percent and 1.3 percent. The new equilibrium is established after approximately 2.5 years. Evidence of the J-curve is also found. Overall, in the light of the results obtained, it is questionable whether permanent depreciation is desirable to improve the trade balance, taking into account potential adverse effects on the rest of the economy.

Subject: Depreciation, Exchange rates, Foreign exchange, International trade, National accounts, Prices, Producer price indexes, Real effective exchange rates, Trade balance

Keywords: Critical value, Depreciation, Exchange rate, Exchange rates, J-curve, J-curve effect, Merchandise trade balance, Middle East, Producer price index, Producer price indexes, Real effective exchange rates, Trade balance, Trade balance improvement, Trade balance response, Transitional economies, Version model, WP

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2004/065
Stock No:

WPIEA0652004
ISBN:

9781451848717
ISSN:

1018-5941

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