The Effects of Exchange Rate Change on the Trade Balance in Croatia

A reduced-form model approach was used to estimate the trade balance response to permanent domestic currency depreciation. For this purpose, long-run and short-run effects were estimated, using three modeling methods along with two real effective exchange rate measures. On average, a 1 percent perma...

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Bibliographic Details
Main Author: Stucka, Tihomir
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2004
Series:IMF Working Papers
Subjects:
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
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245 0 0 |a The Effects of Exchange Rate Change on the Trade Balance in Croatia  |c Tihomir Stucka 
260 |a Washington, D.C.  |b International Monetary Fund  |c 2004 
300 |a 30 pages 
651 4 |a Croatia, Republic of 
653 |a Price indexes 
653 |a Inflation 
653 |a Investment 
653 |a Balance of trade 
653 |a Deflation 
653 |a Real effective exchange rates 
653 |a Trade balance 
653 |a Currency 
653 |a Exports and Imports 
653 |a Intangible Capital 
653 |a International economics 
653 |a National accounts 
653 |a Price Level 
653 |a Foreign Exchange 
653 |a International Policy Coordination and Transmission 
653 |a International Finance: General 
653 |a Depreciation 
653 |a Saving and investment 
653 |a International trade 
653 |a Investments: General 
653 |a Producer price indexes 
653 |a Prices 
653 |a Macroeconomics 
653 |a Capacity 
653 |a Empirical Studies of Trade 
653 |a Exchange rates 
653 |a Capital 
653 |a Foreign exchange 
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989 |b IMF  |a International Monetary Fund 
490 0 |a IMF Working Papers 
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520 |a A reduced-form model approach was used to estimate the trade balance response to permanent domestic currency depreciation. For this purpose, long-run and short-run effects were estimated, using three modeling methods along with two real effective exchange rate measures. On average, a 1 percent permanent depreciation improves the equilibrium trade balance by between 0.94 percent and 1.3 percent. The new equilibrium is established after approximately 2.5 years. Evidence of the J-curve is also found. Overall, in the light of the results obtained, it is questionable whether permanent depreciation is desirable to improve the trade balance, taking into account potential adverse effects on the rest of the economy