The Recent Effects of Exchange Rate on International Trade

Abstract

This paper investigates effects of the real exchange rate and its volatility on trade balance and real GDP using a set of eighteen countries, mainly the OECD developed countries. The paper reports econometric procedures and empirical estimates for major currency-owned large economies and non-major currency- owned countries. One task, for which the elasticities of international trade and real GDP are needed, is developing exchange rate assessments. The study finds that real currency depreciation leads to improvement of trade balance in most of the examined developed countries. But the trade balances after real depreciation of currency do not follow J-curve patterns. With regard to the real exchange rate variability, the evidence is mixed. Similarly, effects of the real currency devaluation on real GDP differ across countries. Also, we observe that major currency-owned countries could have different value-and-volume-effects with non-major currency countries.