Exchange Rate and Trade Balance in Ethiopia: Structural Break Cointegration Approach
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Date
2014-06
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Addis Ababa University
Abstract
The paper analyzed the relationship between exchange rate and trade balance of
Ethiopia employing cointegration technique using annual data from 1974/75 to 2011/12.
It has conducted Zivot-Andrews and Perron unit root test with structural break and
Gregory-Hansen structural break cointegration test besides the convectional unit root
and cointegration tests. The coingeration tests revealed that there is long run
relationship among variables, however, estimation results indicated that the sign of real
effective exchange rate is positive and insignificant which confirms against Marshal-
Learner condition, only currency devaluation may not improve trade balance of Ethiopia
unless other simultaneous policies taken.
Keywords: Exchange Rate; Trade Balance; ML Condition; Structural Break and
Cointegraion
Description
Keywords
Exchange Rate, Trade Balance, ML Condition, Structural Break and Cointegraion