ASSESSING THE EXCHANGE RATE SENSITIVITY OF CZECH BILATERAL AGRICULTURAL TRADE

This paper examines the short term and long term effects of exchange rate changes on bilateral trade flows of agricultural products between the Czech Republic and its major trading partners (Austria, Germany, Italy, Poland and Slovakia). In accordance with the J-curve theory, the Johansen cointegration test was employed to analyse the long term relationship and a vector error correction model to explore the short term effects of Czech koruna exchange rate level. The dataset used in this study covers period from 1999: Q1 to 2013:Q4. Agricultural product groups are based on the SITC classification. Results show that if the Czech foreign trade in agricultural sector is disaggregated into particular product categories, there can be found only some sectors significantly connected with exchange rate movements in the long term. The effects of currency depreciation are less than ambiguous and cannot be generalized across the analysed product categories but increasing in particular trade balances after currency depreciation dominates its decreasing. Theoretical short term and long term assumptions were confirmed only in trade of meat and meat preparations with Slovakia.