Economic Dynamics: The Interconnection Of Trade Balance, Exchange Rate, Inflation, And Imports In The Context Of Empirical Data

Abstract

This study investigates the dynamics and interrelationships among trade balance, exchange rates, inflation, and imports within an empirical data context. Vector Error Correction Estimates are employed to analyze the dataset comprising 55 observations. The cointegrating equation suggests a significant association between lagged values of trade balance, exchange rates, inflation, and imports. For LN_IMPOR, the ADF test statistic is -2.47078, with a p-value of 0.1278. This indicates that LN_IMPOR may have a unit root, although the evidence is not strong enough to reject the null hypothesis of a unit root. Similarly, the ADF test for LN_INFLASI yields a test statistic of -1.5503, with a p-value of 0.5013. Again, there is not sufficient evidence to reject the null hypothesis of a unit root for LN_INFLASI. As for LN_KURS, the ADF test statistic for the level and first difference is -1.71583 and -6.8652, respectively. The corresponding p-values are 0.4181 and 0, indicating strong evidence against the presence of a unit root in the first difference of LN_KURS. However, for the level of LN_KURS, the available evidence is not significant enough to reject the null hypothesis. The results indicate that changes in the trade balance from the previous period positively impact exchange rates, while inflation demonstrates a negative influence. Moreover, imports show a strong positive relationship with trade balance. The error correction analysis reveals that deviations from the long-term equilibrium exhibit significant adjustments towards the equilibrium path. Overall, these findings contribute to understanding the complex interactions among economic variables and provide insights for policymakers and researchers in designing effective economic policies.

Keywords: trade balance, foreign exchange rate, inflation, and imports.