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.
|Number of pages||13|
|Journal||Global Business and Economics Review|
|Publication status||Published - 2009|
- trade balance
- United Kingdom
- Granger causality
- real exchange rates