The Effects of Exchange Rate Change on the Trade Balance of Slovakia

Jana Šimáková

doi:10.18267/j.efaj.124

Abstract

This paper empirically investigates the impact of change in exchange rate on export and import flows between Slovakia and its major trading partners. Devaluation or depreciation of a currency worsens the trade balance before improving it, resulting in a J-curve pattern. For the purpose of this paper, aggregated and disaggregated approaches are used. This paper investigates J-curve phenomenon using quarterly time series data over the period 1997:1 to 2013:4. The results provide evidence that the classical J-curve effect does not exist in Slovakia on the aggregated level. Instead, currency depreciation (increase in real effective exchange rate) is accompanied only by positive change in trade balance with no deterioration under initial value. On the bilateral level, there exists J- curve in trade with Hungary.

Highlights

IntroductionOpen economy, partly relying on export revenues to promote economic growth
Slovakia is relatively small, open economy, partly relying on export revenues to promote economic growth
The impact of exchange rates on volume of international trade has been intensively studied since 1970s, when the world economy moved from fixed exchange rate system to free floating exchange rate system

Summary

Introduction

Open economy, partly relying on export revenues to promote economic growth. Play an important role in its efforts to be more economically prosperous country. Domestic market is insufficiently large to support large-scale production and inevitably depends on imports from other countries to supply a part of domestic consumption. Exports and imports solidly depend on exchange rates and their development. The impact of exchange rates on volume of international trade has been intensively studied since 1970s, when the world economy moved from fixed exchange rate system to free floating exchange rate system. There are numerous empirical studies exploring this issue, but their findings are mixed and depend on region and period under estimation as well as data and methodology used

Objectives

Results

Conclusion