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

Research output: Contribution to journalArticle

Abstract

Two main questions are addressed here: is there a long-run relationship between trade balance and real exchange rate for the bilateral trade between Mauritius and UK? Does a J-curve exist for this bilateral trade? Our findings suggest that the real exchange rate is cointegrated with the trade balance and we find evidence of a J-curve effect. We also find bidirectional causality between the trade balance and the real exchange rate in the long-run. The real exchange rate also causes the trade balance in the short-run. In an out-of-sample forecasting experiment, we also find that real exchange rate contains useful information that can explain future movements in the trade balance.
Original languageEnglish
Pages (from-to)167-179
Number of pages13
JournalGlobal Business and Economics Review
Volume11
Issue number2
DOIs
Publication statusPublished - 2009

Keywords

  • trade balance
  • United Kingdom
  • UK
  • Mauritius
  • forecasting
  • Granger causality
  • J-curve
  • cointegration
  • real exchange rates

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