scholarly journals An Empirical Time Series Econometric Study of the J-curve Effect of Exchange Rate in Trade Balance between China and the US

2020 ◽  
pp. 35-46
Author(s):  
Ming-Lu Wu
Keyword(s):  
Exchange Rate ◽  
Trade Balance ◽  
Unit Root Test ◽  
Real Effective Exchange Rate ◽  
Quarterly Data ◽  
Long Run ◽  
J Curve ◽  
The Us ◽  
Curve Effect ◽  
Short Run

Background and Aims: With the tensed relationship between China and the US, investigating the trade relationship between the two big countries has received more attention than before. This paper is just towards that direction to empirically examine the relationship between China’s real effective exchange rate (REER) and trade balance with the US in both the long-run and short-run, which may exhibit the J-curve effect – currency depreciation deteriorates trade balance in the short-run but promotes trade balance in the long-run – in China’s international trade with the US. Data and Methodology: Quarterly data on China’s REER, trade balance and gross domestic product (GDP, for income) and the US GDP from 2001 to 2017 are retrieved from relevant official websites for the current study. Unit-root test is first conducted on each modeling variable and its first difference to examine the stationarity of the variables. Autoregressive distributed lag (ARDL) approach with error-correction modeling (ECM) cointegration is then adopted to test the popular hypothesis of J-curve effect using the available quarterly data. Results and Conclusion: The modeling results reject the J-curve effect in the short-run but show a long-lasting positive effect of Chinese yuan’s depreciation in China’s trade balance with the US. Also, the US GDP has a positive and much stronger effect than Chinese GDP on China’s trade balance. As such, it is suggested that China should maintain a good relationship with the US and a stable exchange rate for long-run trade balance and economic growth at an appropriate level or rate.

scholarly journals The exchange rate, the trade balance and the J-curve effect in South Africa

2014 ◽  
Vol 17 (5) ◽  
pp. 601-608 ◽  
Author(s):  
Eric Schaling ◽  
Alain Kabundi
Keyword(s):  
South Africa ◽  
Exchange Rate ◽  
Trade Balance ◽  
Real Effective Exchange Rate ◽  
Long Run ◽  
J Curve ◽  
Curve Effect ◽  
Effective Exchange ◽  
Short Run ◽  
Effective Exchange Rate

We find that for the period 1994-2011 there is robust statistical evidence that, in the long run, net exports are boosted by a weaker real effective exchange rate. However, this effect does not hold in the short run. We thus find empirical evidence supporting the J-curve effect for South Africa.

Turkish tourism, exchange rates and income

2016 ◽  
Vol 23 (1) ◽  
pp. 66-77 ◽  
Author(s):  
Gokhan H. Akay ◽  
Atilla Cifter ◽  
Ozdemir Teke
Keyword(s):  
Exchange Rate ◽  
Trade Balance ◽  
Significant Variable ◽  
Correction Model ◽  
Long Run ◽  
J Curve ◽  
Curve Effect ◽  
Short Run ◽  
The Exchange Rate ◽  
Maximum Likelihood Technique

This study examines the effects of the exchange rate and income on Turkish tourism trade balance (TB) using quarterly data for the period 1998–2011. The authors use tourism trade-weighted exchange rate indices and foreign income derived from country-based tourism trade. They employ Johansen’s maximum likelihood technique to estimate the long-run effects of the exchange rate and income on tourism, and employ an error correction model to analyse the short-run effects. The empirical results suggest that income is the most significant variable in explaining tourism TB in the long run. The exchange rate and foreign income positively affect the TB, while domestic income negatively influences it. In the short-run, however, domestic income is the only significant factor. The authors also find no evidence of a J-curve effect in the Turkish tourism TB. These findings are robust to using nominal values.

scholarly journals Exchange rate and trade balance: J-curve effect

2010 ◽  
Vol 57 (1) ◽  
pp. 23-41 ◽  
Author(s):  
Pavle Petrovic ◽  
Mirjana Gligoric
Keyword(s):  
Exchange Rate ◽  
Trade Balance ◽  
Impulse Response Functions ◽  
Distributed Lag ◽  
Autoregressive Distributed Lag ◽  
Long Run ◽  
J Curve ◽  
Curve Effect ◽  
Short Run ◽  
Current Account Adjustments

This paper shows that exchange rate depreciation in Serbia improves trade balance in the long run, while giving rise to a J-curve effect in the short run. These results add to the already existent empirical evidence for a diverse set of other economies. Both Johansen's and autoregressive distributed lag approach are respectively used giving similar long-run estimates showing that real depreciation improves trade balance. Corresponding errorcorrection models as well as impulse response functions indicate that, following currency depreciation, trade balance first deteriorates before it later improves, i.e. exhibiting the J-curve pattern. These results are relevant for policy making both in Serbia and in a number of other emerging Europe countries as they face major current account adjustments after BoP crises of 2009.

scholarly journals Currency Depreciation, Trade Balance and Intra-Industry Trade Interactions in Turkey’s OECD Trade

2016 ◽  
Vol 8 (4) ◽  
pp. 8 ◽  
Author(s):  
Mehmet Demiral
Keyword(s):  
Exchange Rate ◽  
Trade Balance ◽  
Real Effective Exchange Rate ◽  
Series Data ◽  
Adjustment Process ◽  
Industry Trade ◽  
Long Run ◽  
Effective Exchange ◽  
Short Run ◽  
Effective Exchange Rate

<p>This study re-examines the determinants of Turkey’s trade balance in its manufactures trade with 33 OECD-member countries for the short-run and the long-run. Unlike other studies, in the relationships we also control the moderating effects of the availability of import substitutes proxied by intra-industry trade. We analyze quarterly aggregated time-series data of the period spanning from 1998.QI to 2015.QIII, following the autoregressive distributed lag (ARDL) bounds testing approach to the cointegration and the error correction modeling. Estimation results reveal that real effective exchange rate, together with domestic and foreign incomes are still among the core determinants of Turkey’s trade balance in the manufacturing sectors. There is no significant impact of domestic final oil prices that also include all the taxes on gasoline. The trade balance depends on domestic income negatively and the aggregated income of the OECD countries positively. The finding that real depreciation of Turkish lira against to those of Turkey’s OECD trade partners improves trade balance in both the short-run and the long-run, indicates no evidence of J-curve adjustment process. Unsurprisingly, the intra-industry trade seems to be an important factor that moderates the elasticities of trade balance to its determinants, especially to real effective exchange rate and domestic income. Overall results underline the importance of import-substitution capability besides the export-oriented production to ease the longstanding large trade deficits for Turkey.</p><strong></strong>

scholarly journals Different Approaches to Merchandise Trade Balance in Pakistan

2020 ◽  
Vol 12 (Number 2) ◽  
pp. 19-30
Author(s):  
Yousuf Aboya ◽  
Arsalan Hussain ◽  
Rohail Hassan ◽  
Hassan Mujtaba Nawaz Saleem ◽  
Aamir Hussain Siddiqui
Keyword(s):  
Exchange Rate ◽  
Trade Balance ◽  
Trade Deficit ◽  
Real Effective Exchange Rate ◽  
Series Data ◽  
Long Run ◽  
Effective Exchange ◽  
Short Run ◽  
Merchandise Trade ◽  
Effective Exchange Rate

The current study empirically examines the three major approaches to trade balance for Pakistan by utilizing the yearly data from 1972 to 2016. Monetary, elasticity, and absorption approaches were tested by developing a model that incorporates all three approaches. The significant contribution of the study is that it uses only the merchandise trade deficit account, which includes trade of only physical goods. The study used time-series data; therefore, variables have been tested for the stationarity, and it is found that there is a combination of I (0) and I (1) variables, so ARDL bounds testing approach to co-integration has been employed to find the short run and long run associations among the variables. The bound test results discovered that there is a presence of stable long-term association among the merchandise trade deficit account, real broad money supply, real effective exchange rate, and real domestic absorption. The results further revealed that merchandise trade discrepancy is determined purely by the real effective exchange rate, which specifies that the exchange rate's devaluation increases the deficit in the long run whereas in the short-run increase in domestic absorption decreases the merchandise trade deficit.

scholarly journals Pakistan-EU Commodity Trade: Is there Evidence of J-Curve Effect?

2017 ◽  
Vol 17 (2) ◽  
pp. 20160067 ◽  
Author(s):  
Mohsen Bahmani-Oskooee ◽  
Javed Iqbal ◽  
Muhammad Muzammil
Keyword(s):  
Trade Balance ◽  
Bilateral Trade ◽  
Commodity Trade ◽  
Trade Data ◽  
Currency Depreciation ◽  
Long Run ◽  
J Curve ◽  
Curve Effect ◽  
Short Run ◽  
Trade Partners

In investigating the short run and the long run impact of currency depreciation on Pakistan’s trade balance, previous studies have either relied on using bilateral trade data between Pakistan and her trade partners or between Pakistan and the rest of the world and have found not much support for successful depreciation. Suspecting that these studies may suffer from aggregation bias, in this paper we use disaggregated trade data at commodity level from 77 industries that trade between Pakistan and EU. While we find short-run significant effects in 22 industries, these effects do not last into the long run in most industries. Most of the affected industries are found to be small, as measured by their trade shares.

scholarly journals FENOMENA KURVA J PADA NERACA PERDAGANGAN INDONESIA DENGAN ENAM NEGARA MITRA DAGANG UTAMA

2018 ◽  
Vol 1 (2) ◽  
pp. 10
Author(s):  
Anggraeni Tri Hapsari ◽  
Akhmad Syakir Kurnia
Keyword(s):  
Exchange Rate ◽  
Trade Balance ◽  
Bilateral Trade ◽  
Long Run ◽  
J Curve ◽  
Bilateral Trade Balance ◽  
Trading Partners ◽  
Short Run ◽  
Balance Of Trade ◽  
The Exchange Rate

Whether a J curve phenomenon exists or not on the balance of trade has been an interest for empirical investigation in international economics. The phenomenon is typically associated with the response of the balance of trade to the exchange rate dynamics. Since a country has different trade features with different trading partners, the trade balances adjustment to the exchange rate dynamics should be seen as a head to head phenomenon. This paper investigates the effect of real effective exchange rate (REER) on the bilateral trade balance between Indonesia and its six major trading partners, namely Japan, China, Singapore, United States, South Korea and India on a quarterly basis over the period 1995.1 to 2013.4. The short run and the long run effect of the REER on the balance of trade is expected to be captured using error correction model (ECM) and vector error correction model (VECM). Subsequently, impulse response function is used to trace out the behavior of the bilateral trade balance in response to the REER shock whereas forecast error variance decomposition (FEVD) is used to decay the effect of innovation variables in the system. The result indicates that in the long run a J curve phenomenon appears on the bilateral trade balance between Indonesia and Japan, China, Singapore as well as South Korea. In the short run, a J curve phenomenon is seen on the bilateral trade balance between Indonesia and China as well as Singapore. This confirms that a J curve is a head to head phenomenon that has correlation with the trade features. Thus, the correction mechanism to the trade balance in response to the exchange rate shock (i.e. exchange rate market intervention) should count trade features as a consideration

scholarly journals Linear and Nonlinear Dynamics of the Turkish Trade Balance

2016 ◽  
Vol 8 (2) ◽  
pp. 70 ◽  
Author(s):  
Huseyin Karamelikli
Keyword(s):  
United States ◽  
United Kingdom ◽  
Exchange Rate ◽  
Trade Balance ◽  
Bilateral Trade ◽  
Time Series Data ◽  
Series Data ◽  
Long Run ◽  
J Curve ◽  
Short Run

<p>This study empirically analyses bilateral trade of Turkey with her main trade partners using monthly time series data over the period of 2000 to 2015. J-curve theory and short-run dynamics of bilateral trade is tested by linear ARDL and Non-linear ARDL approaches. The empirical results indicate that there is no J-curve effect during short-run for United States and for France; it symmetrically exists to Germany and asymmetrically to United Kingdom. Also long-run relationship between exchange rate and trade balance has mixed results. Asymmetric long-run relationship between exchange rate and trade balance for United States exists where it is symmetrically most appropriate for Germany. In the other hand this study failed to verify any long-run relationship between exchange rate and trade balance for France and for United Kingdom.</p>

scholarly journals Evaluating the Persistence of j Curve Phenomenon in the Bilateral Trade between Bangladesh and USA: The ARDL Bounds Testing Approach and Granger Causality Analysis

2021 ◽  
pp. 74-81
Author(s):  
Subroto Dey ◽  
Homamul Islam
Keyword(s):  
Exchange Rate ◽  
Error Correction ◽  
Granger Causality ◽  
Trade Balance ◽  
Error Correction Model ◽  
Correction Model ◽  
Long Run ◽  
J Curve ◽  
The Usa ◽  
Short Run

Most of the previously examined studies that investigated the repercussion of the trade balance to exchange rate mutation relied on the assumption that appreciation and depreciation behave symmetrically, recently several works have been conducted using the asymmetric analysis. In this work, we exhibited a model employing the disaggregated data (bilateral) of trade balance with the USA. In our pursuit, we endeavored to disclose a phenomenon of the J curve, is this pattern present in our trade balance and exchange rate bearing? In this article, first, we checked the stationary of data set and discovered the stationary employing the Augmented Dickey-Fuller test, Phillips Peron then applying the ARDL bounds test of cointegration apropos to find out the long run co integrated equations and last of all, tried to investigate the short-run and long-run relationship among the variables, while we used the ECM (error correction model). The Toda-Yamamoto Procedure for Granger Causality in a VAR framework has been applied to detect the causal direction. In our model, we have blazoned the negative short-run rapport between the exchange rate and trade balance in the bilateral data, whereas we have remarked a discrepant bearing in the long run and we did receive the evidence of the appearance of j pattern in the relationship between exchange rate and trade balance. Dispensing the error correction model, we found domestic higher price level hinders the trade balance in the short run, did not find any evidence of foreign income stimulate the export. Toda-Yamamoto Procedure for Granger Causality reveals the unidirectional causal effect from exchange rate to trade balance of Bangladesh with the USA.

The dynamics of inflation, exchange rates and the trade balance in a small economy

2018 ◽  
Vol 17 (2) ◽  
pp. 246-264 ◽  
Author(s):  
Zelealem Yiheyis ◽  
Jacob Musila
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Trade Balance ◽  
Exchange Rate Policy ◽  
Content Type ◽  
The Real ◽  
Weak Support ◽  
Long Run ◽  
Curve Effect ◽  
Short Run

Purpose The purpose of this study is to examine the temporal relationships between inflation and exchange rate changes and their implications for the trade balance in Uganda, which saw persistent trade deficits, rising inflation and disinflation episodes, as well as significant exchange-rate realignments and other liberalization measures over the sample period considered. Design/methodology/approach The short-run dynamics of the variables in question and the pattern of their long-run relationships are examined applying the bounds testing approach to cointegration on quarterly data. Findings The estimates suggest that, in the long run, a real depreciation leads to an increase in inflation; and that both real depreciation and inflation exert no significant effect on the trade balance. The estimated short-run dynamics suggest a causal relationship between the trade balance and the real exchange rate and between the real exchange rate and inflation, which is also found responsive to developments in the foreign sector. Taken together, the short-run and long-run multipliers seem to provide a weak support for the J-curve effect, while no evidence is found for the presence of the S-curve effect. Originality/value The study sheds light on the relationship among real exchange rate, inflation and the trade balance in the context of a small developing economy; it highlights that an improvement in the trade balance requires more than an appropriate exchange rate policy and underscores the importance of other policies in strengthening the external sector of the economy.

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