Exchange rate fluctuations and the trade balance of Norway: An econometric analysis

This study examines how the income and expenditure substituting effects work in the case of Norway. By using an autoregressive distributed lag (ARDL) framework, it determines how GDP, money supply and exchange rate affect the trade balance. It also observes the variance decompositions (VDCs) and impulse response functions (IRFs) to achieve further inferences. Using the absorption and monetary approaches, the Marshall-Lerner condition is tested for Norway. The results show that exchange rate has a strong influence on the trade balance. Although changes in GDP and money supply may affect the trade balance, these effects are not that significant.