Real Exchange Rate and Foreign Trade Relationship: The Case of Hungary

Author:Ardit Boka
Position:Ankara HBV University', Ankara, Turkey
Pages:26-31
Vo
l.
6
N
o
.
3
N
ovem
b
er
,
2020
A
cademic Journal o
f
Business,
A
dministration, Law and Social Science
s
II
PCCL Publishin
g
, Graz-
A
ustri
a
I
SSN 2410-391
8
A
cces online at www.ii
p
ccl.or
g
2
6
Real Exchange Rate and Foreign Trade Relationship: The Case of Hungar
y
MSc.
r
t B
"Ankara HBV Universit
y
", Ankara, Turke
y
Abs
tr
ac
t
H
ungary’s foreign trade has scored progress in recent years. The result of this progress has
b
rought a positive e ect on the country’s trade de cit. This situation also raised the question
of whether foreign trade is a ected by exchange rates. The purpose of this study is to evaluate
the factors a ecting the real exchange rate in Hungary from 1995 to 2020.
I
n this study, the
G
ranger causality analysis is used to measure the e ects of macroeconomic factors on the real
e
xchange rate. This study considers macroeconomic factors like exports and imports. Data o
f
the study have been collected from the World Bank. The results show that there is a signi cant
a
nd positive e ect of exports on real exchange rate.
A
lso, there is a bidirectional causality
relationship from exports to imports
.
K
e
y
words
:
real exchange rate, exports and imports.
I
ntr
oduc
t
io
n
H
ungar
y
’s
f
oreign trade volume has made im
p
ortant
p
rogress in recent
y
ears and has
i
ncreased ra
p
idl
y
.
A
lso, the Hungarian Forint has become relativel
y
valuable in recent
y
ears. So how much real exchange rate is a
ected b
y
f
oreign trade, it is becoming an
i
m
p
ortant issue. The estimation o
f
the domestic currenc
y
coincides with the increase
i
n the level o
f
im
p
orts. Meanwhile, the devaluation o
f
the domestic currenc
y
leads
t
o an increase in the level o
f
ex
p
orts, a
f
actor that
p
ositivel
y
a
ects the trade de
cit.
T
he goal o
f
each countr
y
is
f
or the number o
f
ex
p
orts to be higher than the number o
f
i
m
p
orts. Governments o
en undertake re
f
orms that a
ect the value o
f
the domestic
currenc
y
, thus maintaining trade de
cit balances.
A
er 1990 the state sector o
f
the econom
y
began to be
p
rivatized when its greatest
d
evelo
p
ment was a
er the Second World War. The agricultural and industrial sectors
a
re
q
uite develo
p
ed, mainl
y
the industrial sector, which has ex
p
anded since 1945
(
I
nternational Monetar
y
Fond, 2019). Hungar
y
has an ex
p
ort-oriented trading
e
conom
y
, making it the 35th largest ex
p
orter in the world. S
p
eci
call
y
, in 2015, the
H
ungarian econom
y
had over 100 billion
U
SD ex
p
orts, where 79% o
f
the level o
f
e
x
p
orts went to
EU
countries an
d
t
h
e rest ton on-
EU
countries (Hungarian Centra
l
S
tatistical
O
ce, 2016
)
.
I
n t
h
is stu
dy
rea
l
exc
h
ange rate, w
h
ic
h
is an im
p
ortant issue wi
ll
b
e examine
d
wit
h
m
acroeconomic variables. There
f
ore, indicators like real exchange rate, ex
p
orts and
i
m
p
orts data are used
f
or this anal
y
sis based on the timeline o
f
the
y
ears 1995-2020. The
stud
y
tends to consider two macroeconomic
f
actors that a
ect real exchange rate. The
p
lan o
f
stud
y
is divided into sections.
I
t begins with an introduction as the
rst
p
art.
F
urthermore, the stud
y
continues with the second section, which gives in
f
ormation
o
n literature. The third section
f
ocuses on methodolog
y
and data anal
y
sis. Finall
y
, the

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