Do Exchange-Rate Fluctuations Have Asymmetric Impacts on Visegrad–German Sectoral Trade?

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Abstract
Understanding the determinants of trade flows between countries is of particular interest to policymakers, central bankers, business owners and investors. The study examines the long-run impact of the real exchange rate, exchange-rate volatility, and output on the trade balances of 10 SITC (Standard International Trade Classification) sectors between three Visegrad countries and Germany. Because the linear Autoregressive Distributed Lag (ARDL) approach shows little effect across countries and sectors, we decompose the impacts into positive and negative changes via the Nonlinear ARDL approach. The paper adds value in the following respects. The first is that while the overall macroeconomic determinants have a relatively weak connection to these trade balances, the strongest connections are in the primary-product-producing sectors. The second finding is that while most of these trade flows often depend on the country, the sector analyzed, and the method used, there are interesting, stylized results, including the region’s chemical sector and manufacturing in Hungary, for example. The third finding is that nonlinear models show cointegration between the real exchange rate and the trade balance in Visegrad-Germany trade for a higher number of industries, even though the long-run coefficients continue to be insignificant in many cases.