Exchange rates, international trade and inflation: a developing economy perspective

Aziz, MD. Nusrate (2011). Exchange rates, international trade and inflation: a developing economy perspective. University of Birmingham. Ph.D.

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The thesis focuses on empirical modelling and estimation of the role of exchange rate in international trade adjustment, trade prices and domestic inflation in the context of developing countries. Although the study's prime focus is to estimate empirically, using Bangladesh as the main case study, the theoretical assumptions about the effectiveness of exchange rates polices towards trade prices, domestic inflation and trade performance, we also examine the asymmetric behaviour of large exchange rate shocks‘ in trade flows of other South Asian countries such as India, Pakistan and Sri Lanka. Estimated results demonstrate that the exchange rate has a significant positive impact on trade balance in the short- and long-run. However, the J-curve phenomenon can be explained as an appropriate response of trade balance to exchange rate shocks. Along with relative prices and domestic real income, the export demand is also found to be the significant determinant of import demand function. We find complete exchange rate pass-through to import price in both the short- and long-run. However, the second stage pass-through to consumer prices is found to be only partial in both the short- and long-run. Trade liberalization is a significant phenomenon for Bangladesh‘s trade and inflation. Hysteresis in international trade is found to be a commodity and country specific phenomenon. Sunk costs are not found to be significant for hysteresis.

Type of Work: Thesis (Doctorates > Ph.D.)
Award Type: Doctorates > Ph.D.
College/Faculty: Colleges (2008 onwards) > College of Social Sciences
School or Department: Birmingham Business School
Funders: None/not applicable
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HB Economic Theory


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