First, I would say, that running a regression, coefficients say something about the correlation between the variables on the right side of the equation and the variable on the left side - nothing more. You must have a theory that tells you why money supply is an explanatory variable. If you don't have this theory, you have problems with the interpretation. This issue I cannot recognize in your question. Second, when you speak about 'the exchange ratge is positive' you mean a devaluation of the nominal exchange rate or a appreciation of the real exchange rate? The answer on your question depends on that important issue. An apprecition of the real exchange rate should be related to a deficit, a devaluation of the nominal exchange rate with an improvement of the trade balance. Please, clarify!

Thank you, Dr Hubert Gabrisch for your answer. It is clarifying. I am talking about appreciation of real exchange rate. the choice of money supply as explanatory variable is justified by   there is the monetary approach which argues that any balance of payments deficit is due to excess supply of money(MOHSEN BAHMANI-OSKOOE, 1992) and As regard to monetary or global monetarist approach (Polak, 1957; Hahn, 1959; Pearce, 1961; Prais, 1961;  Munde ll, 1968, 1971), the balance of payments is essentially a monetary phenomenon. The balance of payments  behaviour is analysed from the  point of view of the supply and demand of money. In very simple terms, if people demand more money than is  being  supplied  by  the  Central  Bank  then  the  excess demand for money would be satisfied by inflows of money from abroad. In  this  ca se,  the  trade  balance   will  improve.  On  the  other  hand,  if  the Central  Bank  is  supplying  more  money  than  is  demanded,  the  excess supply  of  money  is eliminated  by outflows  of  money  to other countries and this will worsen the trade balance (Duasa 2007)

You have to be careful about whether you mean surplus/deficit on the current account or the financial account.  Capital inflows will increase the surplus (reduce the deficit) on the financial account but may affect the current account in the opposite way, presumably via changes in nominal exchange rates.

Thank you very much for the answer. It help me to better understand the issue

Firsr you define causality what causes what?

Excess money supply leads to more imports n BoB problem.

Trade balance affects exchange rate and exchange rate affects BOB..

ALL depends on exchange rate regime and trade barrier and protection.

So you have to develop the equation with appropriate variables and expected signs 

. 

S

Sorry for my delayed answer.  I disregard causality issues and discuss solely the expected signs of coefficients. I hope that the mathematical form equations below will be accepted by the ResearchGate system.

In shortness, the signs of coefficients you mention are o.k. However, your interpretation is wrong.

Let CA be the current account balance and R the real exchange rate. Assume further that R is defined as E/P with E as the nominal exchange rate and P as the domestic price level. I abstract from the external price level which I will hold constant like the nominal exchange rate E.  Then we have

(1)   ΔCA = αΔR = -α(E/P2)ΔP

This equation shows that an increase in the domestic price level leads to a deterioration of the current account balance through an appreciation of the real exchange rate, when one assumes the nominal exchange rate to be constant or less flexible than the price level. (If the nominal exchange rate is flexible, it is possible that ΔE does not compensate completely for the increase of P; in that case we have also an appreciation of the real exchange rate R.)  We may write:

If ΔP>0, ΔR0), contrary to your question: “And an increase in exchange rate increases the deficit in a trade or current account balance?” An increase of the real exchange rate (ΔR>0) means its depreciation and should be related to an improved current account balance (less deficit or higher surplus) and not, as you state, to a higher deficit.

Now money supply. You assume a direct and positive link between excess money supply and domestic inflation. You can write

Ms-Md = GAP, and thus, ΔP>0 and then: ΔCA = βGAP 

Hence, the expected sign of the coefficient is negative.

 You see, everything seems to be o.k. with the signs of the coefficients you report in your question. However, your report is a bit imprecise. You write:

“If a trade or the current account balance is in deficit, and I assess the impact of for example money supply and exchange rate. The coefficient of the money supply is negative, and the coefficient of the exchange rate is positive.”

I tried to make clear that changes in the variables matter and you argue with levels. You argue with money supply and later with excess money supply. These are different concepts. Money supply may and may not cause inflation, as well as excess money supply may and may not cause inflation and a deterioration of the current account balance (even a lower surplus can matter!). Much depends on the assumptions: a constant velocity of money, the condition of the foreign exchange market to absorb a higher inflation, and last but not least, the response of the central bank on exchange market pressures. These conditions decide how to assess the “impact of money supply and exchange rate”.

Thank you Dr Hubert Gabrisch for the voluable explanation you gave me. Thank you