Trade Balance and Nominal Exchange Rate Volatility: A Time-Series Study for Colombia

Abstract

This article aims to determine whether the trade balance and nominal exchange rate volatility in Colombia hold a stable long-term relation. To prove the existence of this relationship I use some techniques for the study of time series. In particular, I use the ARDL cointegration methodology for the period 2001m01 — 2016m09, and the results suggest that the volatility of the exchange rate and the trade balance are cointegrated. Additionally, I use the Granger test to establish some causality between the series. According to the results, the causality runs from the trade balance to the volatility.