ANOTHER VIEW OF THE J-CURVE

2007 ◽  
Vol 11 (2) ◽  
pp. 153-174 ◽  
Author(s):  
OLIVIER CARDI
Keyword(s):  
Current Account ◽  
Open Economy ◽  
Empirical Studies ◽  
Small Open Economy ◽  
Adjustment Costs ◽  
Terms Of Trade ◽  
Habit Persistence ◽  
Long Run ◽  
J Curve ◽  
The Current Account

Most of empirical studies find evidence of the J-Curve, but recent results cast doubt over its standard explanation. By addressing the countercyclicality of the current account and its dynamic link with the terms of trade, this paper revisits the J-Curve phenomenon using a two-good dynamic optimizing small open economy model allowing for a habit-forming behavior and capital adjustment costs. While the nonmonotonic adjustment of the current account relies on the degree of habit persistence in consumption and the magnitude of capital installation costs after an unanticipated terms of trade worsening, we show that the sizes of the long-run intertemporal elasticity of substitution under time nonseparable preferences and the import content of real consumption and investment matter as well after a temporary perturbation. As a consequence of an intertemporal speculation effect and an inertia effect, the small country reaches the long-term equilibrium with higher foreign assets after a short-lived terms of trade worsening.

scholarly journals Nonexistence of Harberger-Laursen-Metzler Effect with Endogenous Time Preference in an Imperfect Capital Market

2015 ◽  
Vol 2015 ◽  
pp. 1-10 ◽  
Author(s):  
Deng-Shan Wang ◽  
Miao Jin
Keyword(s):  
Discount Rate ◽  
Current Account ◽  
Open Economy ◽  
Capital Market ◽  
Small Open Economy ◽  
Stable State ◽  
Terms Of Trade ◽  
Stable Steady State ◽  
Long Run ◽  
Short Run

This paper investigates the spending and current-account effects of a permanent terms-of-trade change in a dynamic small open economy facing an imperfect world capital market, where the households’ subjective discount rate is a function of savings. Under the assumption that the bond holdings are measured in terms of home goods, it is shown that when the discount rate is a decreasing function of savings, there does not necessarily exist a stable state; however, when the discount rate is an increasing function of savings, a saddle-path stable steady state comes into existence and the Harberger-Laursen-Metzler effect does not exist unambiguously; that is, an unanticipated permanent terms-of-trade deterioration leads to a cut in aggregate expenditure and a current-account surplus. The short-run effects obtained by the technique by Judd (1985, 1987) and Zou (1997) are consistent with the results from the long-run analysis and diagrammatic analysis.

scholarly journals DYNAMIC EFFECTS OF OIL PRICE SHOCKS AND THEIR IMPACT ON THE CURRENT ACCOUNT

2013 ◽  
Vol 18 (2) ◽  
pp. 316-337 ◽  
Author(s):  
Stefan F. Schubert
Keyword(s):  
Current Account ◽  
Open Economy ◽  
Small Open Economy ◽  
Oil Price ◽  
Dynamic Effects ◽  
Price Shocks ◽  
J Curve ◽  
Nonseparable Preferences ◽  
Imported Oil ◽  
The Current Account

We study the dynamic effects of an oil price shock on key economic variables and on the current account of a small open economy. We introduce time-nonseparable preferences into a standard model of a small open economy, where imported oil is used both as an intermediate input in production and as a consumption good. Using a plausible calibration of the model, we show that the changes in output and employment are quite small, and that the current account exhibits the J-curve property, both being in line with recent empirical evidence. After an oil price increase, employment falls and the current account first deteriorates. Over time, with gradually falling expenditures, the trade balance improves sufficiently to turn the current account into a surplus. The model thus provides a plausible explanation of recent empirical findings.

HABIT FORMATION AND GOVERNMENT SPENDING IN A SMALL OPEN ECONOMY

2003 ◽  
Vol 7 (3) ◽  
pp. 407-423 ◽  
Author(s):  
Cem Karayalçin
Keyword(s):  
Fiscal Policy ◽  
General Equilibrium ◽  
Current Account ◽  
Open Economy ◽  
Equilibrium Model ◽  
Government Spending ◽  
Time Preference ◽  
Small Open Economy ◽  
Long Run ◽  
Fiscal Shocks

The paper studies the effects of an expansionary fiscal policy in a general equilibrium model of a small open economy. Households are assumed to possess habit-forming, endogenous rates of time preference. In response to fiscal shocks, the model generates cyclical endogenous persistence and procyclical time paths for consumption, employment, and investment, as well as a countercyclical path for the current account. Furthermore, fiscal shocks are shown to have positive long-run effects on output and negative long-run effects on consumption.

Risk Aversion and Unemployment in an Open Economy

2000 ◽  
Vol 49 (2) ◽  
Author(s):  
Pia Weiß
Keyword(s):  
Risk Aversion ◽  
Open Economy ◽  
Small Open Economy ◽  
Risk Behaviour ◽  
Terms Of Trade ◽  
Individual Risk ◽  
Risk Averse ◽  
Search Frictions ◽  
Long Run ◽  
The Impact

AbstractThe paper analyses the impact which risk aversion has on a small open economy characterised by search frictions on the labour market. It is shown that the long-run qualitative effects caused by a terms-of-trade shock are independent of individual risk behaviour. As far as quantitative aspects are concerned risk aversion always leads to higher equilibrium employment; however the increase in unemployment due to a price shock is the higher the more risk-averse individuals are.

TOURISM AND EXPORTS: THE CASE OF SINGAPORE

2021 ◽  
Author(s):  
Nicholas Tsounis ◽  
George Agiomirgianakis ◽  
Dimitrios Serenis ◽  
Antonios Adamopoulos
Keyword(s):  
Current Account ◽  
Negative Impact ◽  
Long Run ◽  
Tourism Sector ◽  
J Curve ◽  
Inbound Tourism ◽  
The Relationship ◽  
Domestic Products ◽  
Stimulation Of ◽  
The Current Account

In this paper, we examine the relationship between inbound tourism and exports in Singapore. We address whether there is a long-run relationship between exports and tourism and the direction of causality between these two variables. Our findings suggest a long-run relation between Singapore’s exports and inbound tourism and that the causation is bidirectional. This implies that inbound tourism in Singapore results in a higher demand for its domestic products. This increased demand for Singaporean products, in turn, acting as a positive advertising campaign in favour of Singapore, promotes inbound tourism to this country. The policy implication of these findings is twofold: first, inbound tourism in Singapore not only contributes directly to GDP, employment and the current account via tourism revenues but also by stimulating exports, it improves further the current account of Singapore. Secondly, the stimulation of exports induced by inbound tourism creates favorable sustainability conditions for the entire tourism sector. However, one should be cautious that this effect is taking more than nine months to materialize and that inbound tourism may initially have a negative impact effect on Singapore’s exports as the overtime effect of tourism on exports exhibits a j-curve behaviour.

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