The Exchange Rate Volatility (ERV) and Trade Balance (TB) relationship by using monthly data over the period
Question:
The Exchange Rate Volatility (ERV) and Trade Balance (TB) relationship by using monthly data over the period January 2010 to December 2019 and a nonlinear regression model, namely the Nonlinear Autoregressive Distributed Lag (NARDL) model, is employed. We hypothesize that ERV negatively influences Vietnam's TB due to higher costs for risk-averse traders. This study contributes to the literature as follows. First, while most studies in this field explore the symmetric impact of ERV on TB, our analysis focuses on the asymmetric effects of ERV on TB. Second, Vietnam is a nice case to test our hypothesis because Vietnam's economy has been in a transitional period with a growing integration with the world economy. We empirically test our hypothesis using time-series data and find that a positive change in ERV in the short run has a significantly negative impact on TB. However, over a longer horizon, ERV has a significantly positive effect on Vietnam's TB. Moreover, the Error Correction Model (ECM) indicates that 92.38% of disequilibria in the short-run converge to the long-run equilibrium within one month. The key implication derived from this finding is that government intervention concerning exchange rates in transitional economies is needed by pursuing a stable exchange rate policy to sustainably improve TB.
"The impact of ERV on international trade has been widely studied and documented in the literature. However, findings from these studies have not reached a consensus. Some studies report negative effects of ERV on international trade while others find positive influences of ERV on international trade". Much of the literature mentioned in the case study is older (from the 2000s). Since there is no consensus, critique the latest literature on the impact of ERV on international trade for the period 2019 to 2022.