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<p>This paper studies the asymmetric effects of real exchange rates changes on the trade balance of Bangladesh using panel data with 22 partner countries for 1986-2019. The results from the nonlinear autoregressive distributive lag model (NARDL) reveal that changes in bilateral real exchange rates have asymmetric effects on the trade balance. Depreciation of the real exchange rate improves it more than appreciation reduces it in the long run. A partner-specific bounds testing approach also confirms the asymmetric findings. The study apprehends that asymmetries lie in government intervention in the foreign exchange market, the money market, and in government support to the exporters to retain their market share. As the Bangladesh’s currency taka is crawling-pegged against the US dollar and is likely overvalued, the study suggests that a devaluation policy or market-determined exchange rate could improve Bangladesh’s trade balance and macroeconomic stability.</p>

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The effect of exchange rate changes on the trade balance of Bangladesh

  • 期刊论文

  • 发表日期：

    2026年7月9日

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  • Takrima Sayeda

摘要

This paper studies the asymmetric effects of real exchange rates changes on the trade balance of Bangladesh using panel data with 22 partner countries for 1986-2019. The results from the nonlinear autoregressive distributive lag model (NARDL) reveal that changes in bilateral real exchange rates have asymmetric effects on the trade balance. Depreciation of the real exchange rate improves it more than appreciation reduces it in the long run. A partner-specific bounds testing approach also confirms the asymmetric findings. The study apprehends that asymmetries lie in government intervention in the foreign exchange market, the money market, and in government support to the exporters to retain their market share. As the Bangladesh’s currency taka is crawling-pegged against the US dollar and is likely overvalued, the study suggests that a devaluation policy or market-determined exchange rate could improve Bangladesh’s trade balance and macroeconomic stability.