Real Exchange Rate and Trade Balance Relationship: An Empirical Study on Malaysia. International Journal of Business and Management, 3 (8).
Abstract
This paper attempts to identify the relationship between the real exchange rate and trade balance in Malaysia from
year 1955 to 2006. This study uses Unit Root Tests, Cointegration techniques, Engle-Granger test, Vector Error
Correction Model (VECM), and impulse response analyses. The main findings of this paper are: (i) long run
relationship exists between trade balance and exchange rate. Other important variables that determine trade balance
such as domestic income shows a long run positive relationship between trade balances, and foreign income shows a
long run negative relationship (ii) the real exchange rate is an important variable to the trade balance, and
devaluation will improve trade balance in the long run, thus consistent with Marshall-Lerner condition (iii) the
results indicate no J-curve effect in Malaysia case.
| Item Type: | Article |
|---|---|
| Keywords: | Exchange rate, Trade balance, Devaluation, Cointegration, Malaysian economy |
| Taxonomy: | By Subject > Business & Management > Finance |
| Local Content Hub: | Subjects > Business & Management |
| Depositing User: | Mohd Fadhli Samsudin |
| Date Deposited: | 01 Aug 2021 14:40 |
| Last Modified: | 01 Aug 2021 14:40 |
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