| Title: Impact of currency depreciation on trade balance : a case study on Papua New Guinea Author: Rena, Ravinder, Shahabz, Muhammad, Chani, Muhammad Irfan Subject: | Balance of trade Devaluation of currency | Volume: Vol.31 no.1, 2011 Collation: p. 117-140 Abstract: The article delves the comprehensive understanding between trade balance and currency depreciation by incorporating the absorption and monetary approaches, including the Marshal Lerner condition. In doing so, the Ng–Perron test is employed to find out the order of integration and the cointegration technique developed by Johansen and Juselius (1990) to examine the long-run relationship between currency depreciation and trade balance. Our results reveal that there is a long-run relationship among trade balance, currency depreciation, real income and money supply. Any depreciation in local currency worsens the trade balance. The reforms in trade policies improve the trade balance in the future but deterioration in the trade balance seems to reverse this impact due to currency depreciation. A fall in money supply plays a vital role in improving the trade balance in Papua New Guinea. A rise in domestic income seems to recover the trade deficit. Keywords:
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