Paper Title
Development Of Exchange Rate Forecasting Rule For Value-Added Exports Imbalance

Abstract
This study focuses on the role of exchange rate prediction on international trade balance in the process of global value chains with vertical specialization. Theoretically, we review the role of exchange rate on the international trade based on insular, open, and global value chained economies. This paper suggests an appropriate retro forecasting rule of real exchange rate on exports and trade balance in value-added perspective. This study investigates the forecasting rules available to agents if the exports and trade balance are predicted to be an increasing function of the exchange rate. Empirically, we find that value-added REER misalignment has a negative influence on the value-added exports of the US, Japan, and Korea, but a positive influence on the value-added exports of China. Similarly, value-added REER misalignment has a negative influence on the value-added trade balance of the US, China, Japan, but a positive influence on the value-added trade balance of Korea. This suggests that for example, the undervaluation of the US dollar (value-added REER<100) is expected to increase the value-added exports and the value-added trade balance. The overvaluation of Chinese yuan (value-added REER>0) is predicted to increase the value-added exports but the undervaluation of Chinese yuan is predicted to increase the value-added trade balance. The undervaluation of Japanese yen is expected to increase the value-added exports and the value-added trade balance. The undervaluation of Korean won is expected to increase the value-added exports but the overvaluation of Korean won is predicted to increase the value-added trade balance. The topic of this paper is highly relevant given the fact that open economies have recently resorted to the value-added international trade with increased global value chains and the value-added exchange rate as an additional instrument of monetary policy. Thus, the testing results will help anticipate the trade deficit and avoid them. Index Terms - Exchange Rate Forecast, Global Value Chain, Trade Imbalance, Value-added Exports.