How strong is the link between a country’s trade balance and the real exchange rate? We will explore this question using information from the FRED (Federal Reserve Economic Data) database provided by the Federal Reserve Bank of St. Louis. Go to Federal Reserve Economic Data to access the information.
To access the data:
1. Go to Federal Reserve Economic Data.
2. In the search field, enter “Real broad exchange rate.” Select the rate for the United States to obtain the graph.
3. From the graph, choose “Edit graph,” then under units change the series to “Percent change” and “Annual.”
4. Under “Edit graph,” select “Add line.” Enter “Exports of goods and services in the US” in the search field, select “Real exports of goods and services, billions of chained 2009 dollars, not seasonally adjusted,” and select “Add data series.”
5. Under “Customize data,” enter “Imports of goods and services in the US” in the search field, select “Real imports of goods and services, billions of chained 2009 dollars, not seasonally adjusted,” and select “Add.”
6. Next, under “Customize data,” enter “Gross domestic product” in the search field, and select “Real gross domestic product, billions of chained 2009 dollars.”
7. Finally, under “Customize data,” enter the formula “((a-b)/c)*100” in the formula area to calculate the trade balance as a percentage of GDP.
8. Select “Apply” and change the units to “Percent change.”
9. Repeat steps 1 through 8 for Japan, Brazil, and Korea.