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Testing the J-Curve Hypothesis for the USA: Applications of the Nonlinear and Linear ARDL Models

Author

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  • Serdan Ongar

    (Department of Economics, St. Mary's College of Maryland, USA)

  • Dilek Ozdemir

    (Department of Economics, Ataturk University, Turkey)

  • Cem Isik

    (Department of Tourism and Hotel Management, Ataturk University, Turkey)

Abstract

This paper investigates the evidence of the J-curve hypothesis between the United States, a country which has the world's largest trade deficits and an anchor currency, and its main 12 trading partner countries over the period 1991M1–2015M2. To this aim, we apply both linear and nonlinear Autoregressive Distributed Lag (ARDL) cointegration approaches and error-correction model (ECM). The nonlinear ARDL approach, recently introduced by Shin et al. (2014), allows us to examine the separate effects of both the appreciations and depreciations of the USD on the trade balances of the country. The empirical results indicate that while the linear approach supports the evidence of the J-curve for the USA with only 4 trading partners, the nonlinear approach supports such evidence with 8 trading partners. This implies that the nonlinear approach provides more evidence of the hypothesis than the linear approach. Therefore, this study reveals that existing but concealed potential evidence for the J-curve effect may be discovered with the nonlinear approach, which allows for nonlinearity in the adjustment process. Another empirical finding of this study is that depreciations in the USD seem to have more distinct long-run effects on the US trade balances than appreciations.

Suggested Citation

  • Serdan Ongar & Dilek Ozdemir & Cem Isik, 2018. "Testing the J-Curve Hypothesis for the USA: Applications of the Nonlinear and Linear ARDL Models," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 16(1), pages 21-34.
    • Handle: RePEc:seb:journl:v:16:y:2018:i:1:p:21-34
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    References listed on IDEAS

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    Cited by:

    1. Elham Shubaita & Muhammad Mar’i & Mehdi Seraj, 2020. "Investigating in the J-curve phenomenon in Tunisia- ARDL bound test approach," Journal of Economics and Behavioral Studies, AMH International, vol. 12(5), pages 23-32.
    2. Cem IŞIK & Magdalena RADULESCU & Aleksandra FEDAJEV, 2019. "The effects of exchange rate depreciations and appreciations on the tourism trade balance: the case of Spain," Eastern Journal of European Studies, Centre for European Studies, Alexandru Ioan Cuza University, vol. 10, pages 221-237, June.

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    More about this item

    Keywords

    J-curve; Linear and Nonlinear ARDL Cointegration; ECM; Asymmetry; the USA;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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