New insights into Korea's trade relations: A comprehensive FNARDL analysis with 18 global partners
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View abstract on PubMed
Summary
This summary is machine-generated.This study reveals asymmetric real exchange rate effects on Korea
Area Of Science
- Economics
- International Trade
- Econometrics
Background
- The J-curve effect describes the short-term worsening and long-term improvement of a country's trade balance following a currency depreciation.
- Existing models often struggle to capture the nuances of exchange rate dynamics and trade.
- Understanding these effects is crucial for effective trade policy and economic management.
Purpose Of The Study
- To investigate the bilateral J-curve effect between Korea and 18 trading partners using an advanced econometric model.
- To analyze the asymmetric short-run and long-run impacts of real exchange rate changes on bilateral trade.
- To uncover hidden exchange rate effects by employing a more sophisticated modeling approach and granular data.
Main Methods
- Application of the Fourier nonlinear autoregressive distributed lag (FNARDL) model.
- Utilizing bilateral trade data to avoid aggregate misalignment issues.
- Comparing FNARDL model performance against the standard NARDL model.
Main Results
- Detected negative asymmetric short-run effects of real exchange rate changes in some bilateral trade relationships.
- Observed positive or mixed (positive and negative) short-run effects in other cases, attributed to product heterogeneity and exporter behavior.
- Found predominantly positive asymmetric effects in the long run across most trading partnerships.
Conclusions
- The FNARDL model provides a superior framework for capturing the complexities of the J-curve effect compared to traditional NARDL.
- Bilateral trade data analysis reveals nuanced and often hidden impacts of real exchange rate fluctuations.
- Findings offer valuable insights for policymakers in formulating targeted exchange rate management strategies.
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