Estimating long-run Relationships between the trade balance and the terms of trade in selected CARICOM countries

Author(s): Straughn, Ryan (2004)

Created 01 Jan, 2004
Categories Working Papers
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"This paper examines the impact of the terms of trade on the trade balance in 3 Caribbean Community and Common Market (CARICOM) countries, with the inclusion of the real national income and the real stock of money in the model. The econometric procedure employed is the Johansen approach to estimation of multivariate cointegration systems with the aim of testing the empirical validity of the Bickerdike-Metzler (BRM) and Marshall-Lerner (ML) indicate that there exist a significant long run ""statistical equilibrium"" between the trade balances, the terms of trade, the real national income and the real money stock for all three countries. However, these findings along with the impluse response functions indicated that neither the BRM nor the ML condition is supported by the data for any of the three countries, whilst the findings with respect to income and money did not uniformly reject or accept the hypotheses of the absorption or money approaches in the long run."

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