Asymmetric cointegration relationship between real exchange rate and trade variables: the case of Malaysia

The present study attempts to analyze the long-run equilibrium relationship between real exchange rate and trade balance, imports and exports demand by cointegration tests assuming asymmetric adjustment. Following Enders and Siklos (2001), the Engle-Granger two-step cointegration test is expanding t...

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Main Author:	Duasa, Jarita
Format:	Monograph
Language:	English
Published:	- 2009
Subjects:	HG Finance
Online Access:	http://irep.iium.edu.my/1336/ http://irep.iium.edu.my/1336/ http://irep.iium.edu.my/1336/1/Asymmetric_Cointegration_Relationship_between_Real_Exchange_Rate_and_Trade_Variables-The_Case_of_Malaysia.pdf

id	iium-1336
recordtype	eprints
spelling	iium-13362012-01-19T03:48:50Z http://irep.iium.edu.my/1336/ Asymmetric cointegration relationship between real exchange rate and trade variables: the case of Malaysia Duasa, Jarita HG Finance The present study attempts to analyze the long-run equilibrium relationship between real exchange rate and trade balance, imports and exports demand by cointegration tests assuming asymmetric adjustment. Following Enders and Siklos (2001), the Engle-Granger two-step cointegration test is expanding to incorporate an asymmetric error correction term. It is found that there exists asymmetric cointegration between balance of trade and real exchange rate when momentum-threshold autoregressive (M-TAR) model is conducted and the study also found asymmetric cointegration between export volume and real exchange rate under threshold autoregressive (TAR) model. From estimation of M-TAR error-correction trade balance model, the adjustment back to equilibrium is more rapid following relative increase in trade balance (above long-run value) compared to relative decrease in trade balance (below long-run value). From TAR error-correction import demand model, the model suggests quick adjustment of import demand once it is below long-run value. The results reflect the evidence of persistence of trade balance deficit in the case of Malaysia which probably due to policies to defend an overvalued exchange rate by protectionist trade policies or capital controls. In addition, the shock of exchange rate on import demand is likely to be temporary in nature. - 2009 Monograph PeerReviewed application/pdf en http://irep.iium.edu.my/1336/1/Asymmetric_Cointegration_Relationship_between_Real_Exchange_Rate_and_Trade_Variables-The_Case_of_Malaysia.pdf Duasa, Jarita (2009) Asymmetric cointegration relationship between real exchange rate and trade variables: the case of Malaysia. Working Paper. -. (Unpublished) http://econpapers.repec.org/paper/pramprapa/14535.htm
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English
topic	HG Finance
spellingShingle	HG Finance Duasa, Jarita Asymmetric cointegration relationship between real exchange rate and trade variables: the case of Malaysia
description	The present study attempts to analyze the long-run equilibrium relationship between real exchange rate and trade balance, imports and exports demand by cointegration tests assuming asymmetric adjustment. Following Enders and Siklos (2001), the Engle-Granger two-step cointegration test is expanding to incorporate an asymmetric error correction term. It is found that there exists asymmetric cointegration between balance of trade and real exchange rate when momentum-threshold autoregressive (M-TAR) model is conducted and the study also found asymmetric cointegration between export volume and real exchange rate under threshold autoregressive (TAR) model. From estimation of M-TAR error-correction trade balance model, the adjustment back to equilibrium is more rapid following relative increase in trade balance (above long-run value) compared to relative decrease in trade balance (below long-run value). From TAR error-correction import demand model, the model suggests quick adjustment of import demand once it is below long-run value. The results reflect the evidence of persistence of trade balance deficit in the case of Malaysia which probably due to policies to defend an overvalued exchange rate by protectionist trade policies or capital controls. In addition, the shock of exchange rate on import demand is likely to be temporary in nature.
format	Monograph
author	Duasa, Jarita
author_facet	Duasa, Jarita
author_sort	Duasa, Jarita
title	Asymmetric cointegration relationship between real exchange rate and trade variables: the case of Malaysia
title_short	Asymmetric cointegration relationship between real exchange rate and trade variables: the case of Malaysia
title_full	Asymmetric cointegration relationship between real exchange rate and trade variables: the case of Malaysia
title_fullStr	Asymmetric cointegration relationship between real exchange rate and trade variables: the case of Malaysia
title_full_unstemmed	Asymmetric cointegration relationship between real exchange rate and trade variables: the case of Malaysia
title_sort	asymmetric cointegration relationship between real exchange rate and trade variables: the case of malaysia
publisher	-
publishDate	2009
url	http://irep.iium.edu.my/1336/ http://irep.iium.edu.my/1336/ http://irep.iium.edu.my/1336/1/Asymmetric_Cointegration_Relationship_between_Real_Exchange_Rate_and_Trade_Variables-The_Case_of_Malaysia.pdf
first_indexed	2023-09-18T20:08:36Z
last_indexed	2023-09-18T20:08:36Z
_version_	1777407326177722368

Asymmetric cointegration relationship between real exchange rate and trade variables: the case of Malaysia

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