TITLE:
Effects of Real Exchange Rate on Trade Balance in Cote d’Ivoire: Evidence from Threshold Nonlinear ARDL Model
AUTHORS:
Yaya Keho
KEYWORDS:
Nonlinear ARDL, Asymmetry, The Trade Balance, The Exchange Rate
JOURNAL NAME:
Theoretical Economics Letters,
Vol.11 No.3,
June
17,
2021
ABSTRACT: The objective of this paper is to shed new light on
the nonlinear relationship between real exchange rate changes and trade balance
in Cote d’Ivoire. In examining this issue, previous studies have relied on the
nonlinear autoregressive distributed lag model developed by Shin et al. (2014) where real exchange rate is decomposed into partial sum of positive and
negative changes. They fail to examine the response of the trade balance to
extreme changes in the real exchange rate.
In order to investigate possible sign and size-dependence in the
response of the trade balance to exchange rate, this study uses multiple
threshold nonlinear ARDL modeling. The approach is implemented using annual
data covering the period 1975-2017. The results reveal that the effects of
changes in real exchange rate are asymmetric in both time horizons. More
specifically, real exchange rate appreciations deteriorate the trade balance
while real depreciations improve it. Further, the effect of large depreciations
is higher when compared with large appreciations.