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- Title
Real Exchange Rates and the Balance of Trade: Does the J-curve Effect Really Hold?
- Authors
Yazgan, M. Ege; Ozturk, Serda Selin
- Abstract
In this paper, we re-examine the relationship between trade flows, real effective exchange rates, and incomes by using the bilateral trade flows of 33 countries that form more than two-thirds of total world trade. For each country, we consider the bilateral trade flows of the country under consideration vis-à-vis all other countries. The analysis reveals the fact that for most of the countries, a real depreciation of the home currency has favorable effects on the home country's trade balance in the long run. This long-run effect manifests itself in the short run for a small number of countries, indicating the fact that satisfying the Marshall-Lerner condition in the short run is more difficult. However, there is no evidence for the J-curve phenomenon, which suggests an initial deterioration in the trade balance in the short run following a depreciation.
- Subjects
BALANCE of trade; FOREIGN exchange rates; DEPRECIATION laws; PANEL analysis; COINTEGRATION
- Publication
Open Economies Review, 2019, Vol 30, Issue 2, p343
- ISSN
0923-7992
- Publication type
Article
- DOI
10.1007/s11079-018-9510-3