The Effect of Real Exchange Rate on Trade Balance in a Resource-Rich Economy: The Case of Mongolia

Gan-Ochir Doojav

    Research output: Contribution to journalArticle

    Abstract

    For resource-rich developing economies, the effect of real exchange rate depreciation on trade balance may differ from the standard findings depending on country specific characteristics. This article employs vector error correction model to examine the effect of real exchange rate on trade balance in Mongolia, a resource-rich developing country. Empirical results show that exchange rate depreciation improves trade balance in both short and long run. In particular, the well-known Marshall–Lerner condition holds in the long run; however, there is no evidence of the classic J-curve effects in the short run. The results suggest that the exchange rate flexibility may help to deal effectively with current account deficits and exchange rate risk. JEL Classification: C32, C51, F14, F32
    Original languageEnglish
    Pages (from-to)211-224
    JournalForeign Trade Review
    Volume53
    Issue number4
    DOIs
    Publication statusPublished - 2018

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