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Empirica

, Volume 42, Issue 3, pp 673–683 | Cite as

Impulse response analysis and Orcutt’s hypothesis in trade

  • Mohsen Bahmani-OskooeeEmail author
  • Esmaeil Ebadi
Original Paper

Abstract

How fast trade flows respond to exchange rate changes versus relative price changes has its own literature in international economics. Indeed, Orcutt (Rev Econ Stat 32:117–132, 1950) conjectures that they respond faster to exchange rate changes than to changes in relative prices. Previous studies tested the hypothesis by imposing lag structure on both the exchange rate and relative prices and judged Orcutt’s conjecture by identifying significant lag lengths. In this paper, we rely upon impulse response analysis as an alternative method to test the hypothesis. We find very limited number of cases in which impulse response of trade flows to changes in the exchange rate dies out sooner than the same response to changes in relative prices.

Keywords

Orcutt’s hypothesis Industrial countries Impulse response Trade flows 

JEL Classification

F31 

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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.The Center for Research in International Economics, Department of EconomicsThe University of Wisconsin-MilwaukeeMilwaukeeUSA

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