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Currency manipulations, the intentional intervention in the foreign exchange market by a country’s government or central bank, have been a contentious issue in international trade. However, empirical evidence on the matter is scarce. This study aims to fill this gap by investigating the effect of currency manipulations on the US bilateral trade balance with its major trading partners over a long-term period of 2000Q4 to 2020Q2. By using a novel currency manipulation index based on the US Treasury-defined variables and a combination of time series and panel cointegration approaches, this study uses a dataset of 21 major trading partners of the US. The analysis shows that currency manipulations have a statistically significant negative effect on the US bilateral trade balance with some country-level heterogeneity. The study provides new insights on the role of currency manipulations in international trade and implies that the findings have significant policy implications. By providing evidence of the detrimental effect of currency manipulations on trade balance, this study supports the argument for the need of international agreements and regulations to discourage such practices and promote fairness in global trade.

Almost all studies that tested the J-curve phenomenon, used trade data in only goods. Trade in service has received no attention until recently when one study tested the symmetric and asymmetric J-curve hypothesis using financial and insurance service data between the U.S. and its major partners. In this paper we add to this new literature by testing the symmetric and asymmetric J-curve effect using China’s service trade with rest of the world. We find support for the J-curve effect in six out of 12 service industries, symmetric in some and asymmetric in some others.

Nearly all studies in the literature have assessed the impact of exchange rate changes on trade flows for goods. Service industries, however, have not received much attention. Two studies have assessed the effects of exchange rate changes on U.S. service trade with its partners. We add to this literature with a new study that assesses the symmetric and asymmetric effects of changes in the real effective rate of the yuan on China’s trade in 11 service industries with the world. While we find short-run effects on imports and exports for almost all service categories, short-run effects last into long-run asymmetric effects in six Chinese importing service industries and eight Chinese exporting service industries.

Almost all studies in the trade literature have concentrated on the trade in goods. Recently, a study considered trade in two service industries (insurance and financial) between the U.S. and six of her trading partners and concluded that exchange rate changes have no significant effects on the U.S. service trade. Could such a finding be due to assuming the effects to be symmetric? We provide an affirmative answer by arguing and demonstrating that the effects of exchange rate on service trade could be asymmetric, which requires using nonlinear models. Once we estimate the nonlinear models, indeed we show that dollar depreciation and dollar appreciation have significant short-run and long-run effects on the U.S. inpayments from and outpayments to most of its partners in the two service industries. We attribute our new discoveries to the nonlinear adjustment of the real exchange rate.

A few previous studies that assessed the impact of policy uncertainty on trade flows assumed that the effects are symmetric. In this paper we argue that since traders’ expectations differ when uncertainty rises versus when it declines, effects could be asymmetric, which requires using nonlinear models. We test this argument by considering trade flows of 28 relatively large industries that trade between the United States and Germany. Estimates of symmetric and linear models for each industry revealed that while 35 % of industries were affected by both policy uncertainty measures in the short run, the long-run effects of both measures were negligible. In contrast, estimates of asymmetric and nonlinear models revealed that 75 % of exports in either direction were affected by both policy uncertainty measures in the short run. In the long run, however, 29 % (10?%) of U.S. exports were affected by U.S. (German) policy uncertainty, and not much of German exports were affected by either uncertainty measure.

ABSTRACTA previous study in this journal assessed the short-run and long-run effects of policy uncertainty on house prices using data from each state of the United States. By assuming the effects to be symmetric, the study revealed short-run effects in 24 states and long-run effects in 17. When we assume the effects to be asymmetric and estimate a nonlinear model for each state, we show short-run asymmetric effects in 32 states and long-run asymmetric effects in 24 states. The increase in number of states from the linear model to nonlinear model is attributed to nonlinear adjustment of policy uncertainty.

The main goal of the former NAFTA and current United States–Mexico–Canada Agreement (USMCA) was to remove barriers to trade and increase trade in both directions. Clearly, the goal will be achieved more effectively if the real exchange rate was fixed among the three members. But they are not. They change not only due to changes in the nominal exchange rates but also due to changes in prices. We investigate whether the real peso-Canadian dollar play any role in the trade between Mexico and Canada. We consider the trade balance of 16 industries that trade between the two countries and find that when we estimated a traditional linear model, indeed, we did not find much of a long-run impact on the trade balances. However, when we estimated a nonlinear model, we discovered long-run effects in 11 industries. While in two industries we found evidence of symmetric J-curve, in nine industries the concept of asymmetric inverse J-curve received support, included one of the largest industries that engage in 1/3rd of the trade.

In this study, we aim at assessing the effects of policy uncertainty on consumption in G7 countries. Unlike previous research, we take an additional step and show that the impacts are asymmetric, which helps us to have a better understanding of the effects of increased versus decreased uncertainty in the G7 economies. Our results suggest that policy uncertainty has indeed asymmetric effects on consumer expenditure in all G7 countries. These findings imply that the positive and the negative shocks could not offset each other’s impact on consumption, which leads to a different path of consumption before and after a period with a high level of uncertainty.

All previous studies that have assessed the J-curve phenomenon for Pakistan have relied upon methods that assume that the adjustment of the exchange rate follows a linear path. In this paper, we consider the trade balance of 41 industries that trade between Pakistan and one of its major partners, the US, and extend the literature by assuming that the exchange rate adjusts in a nonlinear manner. When we estimated a linear ARDL model for each industry, we found support for the J-curve only in 10 industries. However, when we estimated a nonlinear ARDL model, we found support for the asymmetric J-curve in 19 industries. In 8 industries, the support was due to favorable effects of rupee depreciation, and in 11 industries, it was due to unfavorable effects of rupee appreciation.

Since the publication of Baker et al. (2016) work on measuring economic policy uncertainty, its impact on other macro variables has received renewed attention and its impact on the demand for money is no exception. A previous study that assessed its impact on the demand for money in the U.K. found short-run but not long-run effects. We suspect that this could be due to assuming the effects of policy uncertainty to be symmetric. Once we assess its asymmetric effects by introducing the nonlinear adjustment of the policy uncertainty measure, we show that, both increased and decreased uncertainty, induce the public in the U.K. to hold more cash in the long run, a clear sign of an asymmetric response.

This paper focuses on the analysis of the long-run response of the real exchange rate (RER) to political risks and tests whether non-economic variables have an impact on RER in 31 emerging and developing countries. We use annual data from the International Country Risk Guide database over the 1984–2016 period. Based on the recently developed method of cross-sectionally augmented ARDL approach of Chudik and Pesaran (J Econ 188:393–420, 2015b), and the panel threshold estimation of Chudik et al. (Rev Econ Stat 99(1):135–150, 2017) our main findings are the following: (1) countries experiencing a high degree of corruption, a high risk to investment, or a high degree of political instability tend to experience a real exchange rate depreciation, (2) there exists strong evidence for a threshold effect on the relationship between investment profile-RER, corruption-RER and political instability-RER. Specifically, political instability and corruption adversely affect real exchange rate especially when they exceed the threshold. (3) The effects of bureaucracy, law, and order seem to be statistically insignificant on the RER. Our findings are robust to the inclusion of the Balassa–Samuelson effect in the estimated equations.

Previous research has shown that lack of any short-run and long-run relationship between the trade balance and the exchange rate could be due to ignoring non-linear adjustment of the exchange rate. In this paper, we introduce non-linearity of the exchange rate adjustment and consider the asymmetric response of Kazakhstan’s trade balance with each of its 13 trading partners. While we find short-run asymmetric response in almost all 13 models, short-run asymmetric effects translate into the long run only in the trade with Austria, China, France, and the U.S. Only in the trade with France a tenge depreciation had favorable long-run effects.

Exchange rate volatility is said to have negative or positive effects on trade flows, depending on the degree of traders' risk aversion. However, due to changes in their expectations, the effects of exchange rate volatility on trade flows could be asymmetric. We add to this new asymmetry literature by investigating the impact of dollar-euro volatility on the U.S. trade flows with each of the 12 original members of the euro zone in order to identify members that are hurt by volatility. We find that trade flows of the U.S. with all members are affected by volatility asymmetrically in the short run. The short-run asymmetric effects last into long-run asymmetric effects in U.S. exports to nine of the 12 members and in U.S. imports from two members. Additional analysis revealed that increased exchange rate volatility will boost U.S. exports to Greece and U.S. imports from Austria and Portugal. On the other hand, decreased volatility will hurt U.S. exports to Greece and boost its exports to Italy, the Netherlands, and Portugal while having no long-run impact on U.S. imports from any partner.

The majority of past studies assessed the impact of oil price on stock returns using aggregate stock price index from different countries and assuming the effects to be symmetric. In this paper, we investigate asymmetric causality not only from oil price to stock returns but also from stock returns to oil price. To reduce aggregation bias, we use data from nine different sectors of the U.S. economy. We found that an increase in oil price causes returns of three sectors, while a decrease in oil price causes returns of four sectors, all in the short run. On the other hand, we found that an increase in returns in three sectors causes oil price to rise, while a decrease in returns in six sectors causes oil price to decline. We do not discover significant long-run causal relationship in either direction.

Through its inflationary effects, exchange rate changes could affect house prices. On the other hand, rising house prices could have a wealth effect on consumption and imports, inducing an increase in demand for foreign exchange. We apply a bootstrap multivariate panel Granger causality test to examine the causal relationship between house prices and real effective exchange rates across 18 OECD countries. After accounting for both dependency and heterogeneity across these countries, we find support for house prices causing exchange rate changes in half of the countries in our sample and exchange rates causing house price changes in another half.

In this paper we revisit the convergence hypothesis among OECD countries. Unlike previous research which relied upon conventional unit root tests to determine if per capita real income in each country converge toward the real per capita income of a benchmark level, we employ recently introduced quantile unit root testing procedure which also accounts for multiple and unknown structural breaks via a Fourier expansion series. Our results indicate that the negative shocks due to World wars I and II and/or financial crises have transitory effects in countries such as Japan and Germany, while in other countries like Italy and France they have permanent effects.

In this paper, we study a sample of twelve African countries to examine the impact of the real exchange-rate volatility on their trade flows. In order to distinguish the distinct impact of the real exchange-rate volatility on their exports and imports, both in the short-run and long-run, we use the bounds-testing approach. We find that while exchange rate volatility affects trade flows of many of the countries in our sample in the short run, the long-run effects were restricted only on the exports of five countries and on the imports of only one country. The level of economic activity in the world and at home were identified to be major determinants of exports and imports, respectively.

There are a few methods that could be used to assess the impact of exchange rate changes on the trade balance of a country. One of them is to analyse the effects of exchange rate changes on a country's inpayments and outpayments at the bilateral level. One study that did this between Singapore and her 13 largest partners did not find any significant effects of exchange rate changes on Singapore's inpayments from and outpayments to Malaysia, the largest trading partner. Suspecting that such findings could suffer from aggregation bias, we disaggregate the trade flows between the two countries by commodity and investigate the sensitivity of the inpayments of 156 Singapore export industries which engage in 98% of exports to Malaysia, and the outpayments of 133 import industries which conduct 96.7% of imports from Malaysia. Application of the bounds testing approach to each and every industry's model revealed that most industries respond to exchange rate changes in the short run. In the long run, however, only the inpayments of 62 industries and outpayments of 52 industries are affected.

Executive SummaryWe apply a bootstrap panel Granger causality test to examine the causal relation between the housing market and the stock market across 18 OECD countries for the period from 1993:Q1 to 2015:Q4, which accounts for both dependency and heterogeneity across regions. The results provide evidence for the credit-price effect in Belgium and Japan. The wealth effect is supported in Australia, Canada, France, Greece, Portugal, South Korea, Spain, Sweden, and the United Kingdom. A feedback effect was found in Ireland, Italy, Netherlands, and the United States and finally, the neutrality effect was supported in Denmark, Finland, and Germany.

The new direction on the link between the exchange rate and the trade balance today is asymmetry analysis. We enter into this direction by investigating the asymmetric effects of exchange rate changes on the trade balance of 11 industries that trade between the US and Bangladesh. These 11 industries together engage in 85% of the trade. We find evidence of short-run asymmetric effects in almost all industries. The short-run asymmetric effects last into long-run asymmetric effects in seven industries. At best our findings are industry specific.

We use monthly data over the period 2000M1–2016M11 to assess response of U.K. trade balances with each of its 19 trading partners. When a linear ARDL model was estimated, we found short-run symmetric effects in the U.K. trade balance with 11 partners that lasted into the long-run symmetric effects in only five cases. However, when we shifted to a nonlinear ARDL model, we found short-run asymmetric effects with 14 partners which lasted into the long-run asymmetric effects in eight cases. The long-run effects were adverse in most cases which could be due to inelastic import demands. Future research must concentrate on disaggregating British trade data with each partner, especially with three largest partners (i.e., Germany, the U.S., and China) in order to identify industries that could benefit from pound depreciation.

On the assumption that wages do not adjust fully to inflationary effects of currency depreciation, a depreciation could shift income from workers to producers which could worsen income inequality. When we tested this hypothesis using a standard linear ARDL model, we found no long-run support for the hypothesis in any of the 51 states of the U.S. However, when we applied recent advances in formulating nonlinearity and introduced nonlinear adjustment of the real effective exchange rate of the dollar, we found significant short-run and long-run asymmetric effects in almost half of the 51 states. In most states, dollar depreciation was found to have un-equalizing effects on income inequality, consistent with theory.

Over the last four decades, numerous studies have employed the newest empirical methods to examine the role of exchange-rate depreciations and appreciations on international trade flows. In recent years, innovations in cointegration analysis have allowed for the estimation of nonlinear effects, particularly whether appreciations and depreciations have differing impacts on a country's trade balance. This study examines these effects for Japanese bilateral trade with 12 partners. Applying the linear Autoregressive Distributed Lag (ARDL) of Pesaran et al. (2001)as well as nonlinear ARDL method of Shin et al. (2014)to quarterly time-series data, we find that the nonlinear method registers more effects. While the linear approach shows that Japan's trade balance improves in the long run following a yen depreciation for three countries, seven countries respond when the nonlinear method is applied. This effect is asymmetric in most cases—meaning that trade responds differently to currency appreciations as compared to depreciations.

AbstractResearch on the effects of exchange rate changes on the trade balance is now moving in a new direction, by investigating whether exchange rate changes have symmetric or asymmetric effects. The approach that relies upon separating depreciations from appreciations introduces nonlinearity into the adjustment process and relies upon the nonlinear ARDL approach of Shin et al. [2014. Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework, in: R. Sickels and W. Horrace (Eds), Festschrift in Honor of Peter Schmidt: Econometric Methods and Applications, 281–314 (Springer)]. When we applied this new method to the bilateral trade balances of Malaysia with each of her 11 largest partners, we found adjustment asymmetry in all models, short-run impact asymmetry effects and long-run asymmetry effects in the trade balance models between Malaysia and Asian countries.

Executive Summary.Previous research has either relied on a time series model or a panel model to establish cointegration between house prices and their main determinants, such as a measure of household income and a measure of interest rates. The findings are mixed but mostly lean toward rejecting cointegration between house prices and economic fundamentals. None of the studies included a measure policy uncertainty in their models. We include a measure of policy uncertainty in our model and use the bounds testing approach for cointegration and error-correction modeling. We find that policy uncertainty has short-run and mostly negative effects on house prices in 24 states. The short-run effects last into the long run in 17 states. Furthermore, cointegration is established in 35 states.

Earlier studies that examined the impact of exchange rate volatility on trade flows of Pakistan used aggregate trade data either between Pakistan and the rest of the world or at bilateral trade between Pakistan and her major trading partners. Not much support was found for significant impact of exchange rate uncertainty on trade flows by either group. Suspecting that they suffer from aggregation bias, we consider Pakistan–Japan trade flows but disaggregate them by commodity. In total, 44 Pakistani export industries to Japan and 60 Pakistani import industries from Japan were analysed. Contrary to our expectation and other disaggregated studies, not many industries were affected by exchange rate volatility neither in the short run nor in the long run.

A previous study that analyzed the impact of the U.S. and Mexican policy uncertainties on trade flows between the two countries assumed that the effects are symmetric. In this paper, we argue and demonstrate that the effects could be asymmetric. Since asymmetry analysis requires nonlinear models, we discover relatively more significant and exciting results. A total of 93 industries that trade between the U.S. and Mexico are included in the study. While we found short-run asymmetric effects in most industries, long-run asymmetric effects were discovered in about 25% of the industries. The findings were industry specific. For example, the largest U.S. exporting industry to Mexico (Electric machinery with 16.27% export share) was hurt by increased uncertainty in Mexico but helped by increased uncertainty in the U.S. On the other hand, the largest Mexican exporting industry to the U.S. (Vehicles and Parts with 28.3% export share) was helped by increased uncertainty in the U.S. but not by any changes in the Mexican uncertainty.

One previous research examined the short-run and the long-run effects of exchange rate changes on the Malaysian trade balance with each of its 11 largest partners using the linear and nonlinear ARDL models. No significant impact was discovered in the Malaysian model with its largest partner, Singapore. In this paper when we disaggregate their trade flows by 65 industries which conduct 91% of the trade, we discover the short-run asymmetric effects of exchange rate changes on the trade balance of almost all industries, adjustment asymmetry in 31 industries, short-run significant impact or cumulative asymmetric effect in 10 industries, and significant long-run asymmetric effects in 20 industries. The two largest industries, i.e., Petroleum and Electrical machinery with 40% share of trade were found to benefit from ringgit depreciation but not hurt by ringgit appreciation.

This study applies a newly-developed Autoregressive Distributed Lag (ADL) test for threshold cointegration, proposed by Li and Lee (2010), to revisit the real interest rate parity (RIP) in BRICS countries (i.e., Brazil, Russia, India, China, and South Africa) against the United States over the period of January 1996 to September 2015. The empirical results indicate that real interest rate parity holds in Brazil, Russia and China.