The Japanese-U.S. trade balance and the yen: Evidence from industry data
AbstractWhile it is often assumed that a country's trade balance will improve in the long-run if its currency is allowed to depreciate, this is not necessarily the case for specific goods. In the short run, the opposite might even take place, as fixed quantities and rising import prices cause the trade balance to deteriorate. In this paper, we apply cointegration methodology to assess the short- and long-run impact of fluctuations in the yen-dollar real exchange rate on Japan's trade balance with the U.S. for 117 industries. We find that depreciation causes the trade balance to improve in the long-run for about one-third of Japanese industries. Most short-run effects are in the same direction, indicating a quick improvement in these industries' trade balance, rather than a period of deterioration such as a "J-curve."
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Bibliographic InfoArticle provided by Elsevier in its journal Japan and the World Economy.
Volume (Year): 21 (2009)
Issue (Month): 2 (March)
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Web page: http://www.elsevier.com/locate/inca/505557
J-curve Japan Bounds testing approach Industry data;
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