NDLI: The common trend and common cycle of exports and the real exchange rate: Empirical results from Swiss data

Content Provider	Springer Nature Link
Author	Kugler, Peter
Copyright Year	2000
Abstract	This paper contains an empirical analysis of the relationship of Swiss goods exports, the real exchange rate and world trade, using the common-trend-common-cycle methodology. This exercise shows that the trend and cyclical dependence of these variables are strongly different: exports and the real exchange rate exhibit a positive long-run or trend dependence of world trade whereas the short-run or cyclical relationship of exports to the real exchange rate is strongly negative with approximately a unit elasticity. These results, which differ strongly from standard dynamic regression or error correction estimates, can be interpreted as follows. In the short run we observe the strong negative cyclical relationship between exports and the real exchange rate, which we expect from short-run macroeconomic models with sticky prices. If we make the reasonable assumption that short-run real exchange rate movements are exogenous to exports and, for instance, caused by monetary policy then we come to the conclusion that cyclical real exchange rate variations lead to strong export cycles. However, in the long run, there is a completely different positive comovement of these two variables, which are both driven by the world trade trend. This common trend of exports and the real exchange rate can be understood as an equilibrium reaction of both variables, price and quantity of the exported goods, to exogenous changes in world trade given a production technology available for the country.
Starting Page	171
Ending Page	180
Page Count	10
File Format	PDF
ISSN	00432636
Journal	Weltwirtschaftliches Archiv
Volume Number	136
Issue Number	1
e-ISSN	16102886
Language	English
Publisher	Springer-Verlag
Publisher Date	2000-01-01
Publisher Place	Berlin, Heidelberg
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	International Economics Economics general
Content Type	Text
Resource Type	Article
Subject	Business, Management and Accounting

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