Trade balance and real exchange rate: new evidence from Mauritius-UK trade

Research output: Preprint or Working paperWorking paper

Abstract

In this study we investigate whether there exists a relationship between the exchange rate and the trade balance using bilateral data for the Mauritius/UK trade. We also investigate whether following depreciation or a devaluation the trade balance initially worsens due to contractual agreements and subsequently improves when new contracts for international trade are signed. Using a variety of econometric techniques we are able to establish that there exists a long-run relationship between the trade balance and the real exchange rate. The existence of such a relationship signifies that the authorities would be able to use the exchange rate to steer the trade balance. We also find following a depreciation or devaluation the trade balance initially worsens due to contractual agreements but the trade balance subsequently improves when new contracts are signed. This signifies that if the authorities want to devalue their currency to improve the trade balance, the desired effect does not occur immediately but it occurs with a lag, in this particular case after approximately a year.
Original languageEnglish
Place of PublicationBirmingham
PublisherAston University
VolumeRP0715
ISBN (Print)978-1-85449-705-5
Publication statusPublished - Dec 2007

Publication series

NameAston Business School research papers
PublisherAston University
No.RP0715

Keywords

  • trade balance
  • exchange rate
  • devaluation

Fingerprint

Dive into the research topics of 'Trade balance and real exchange rate: new evidence from Mauritius-UK trade'. Together they form a unique fingerprint.

Cite this