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The J-curve in the emerging economies of Eastern Europe

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Author Info

  • Mohsen Bahmani-Oskooee
  • Ali Kutan

Abstract

Devaluation or depreciation of a currency worsens the trade balance before improving it, resulting in a J-curve pattern. A new definition of the hypothesis implies a short-run deterioration combined with the long-run improvement. By using monthly data over the January 1990-June 2005 period from 11 east European emerging economies, most of which are the new European Union (EU) members or the EU candidate countries, this article uses the bounds testing approach to cointegration and error-correction modelling and finds empirical support for the J-curve hypothesis in three countries of Bulgaria, Croatia and Russia. The results have important implications for policymakers involved in economics in terms of using exchange rate policy as a policy device to achieve real convergence toward EU standards.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/00036840701235696
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 41 (2009)
Issue (Month): 20 ()
Pages: 2523-2532

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Handle: RePEc:taf:applec:v:41:y:2009:i:20:p:2523-2532

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Cited by:
  1. Martin Falk, 2008. "Determinants of the Trade Balance in Industrialized Countries," FIW Research Reports series I-013, FIW.
  2. Kyophilavong, Phouphet & Shahbaz, Muhammad & Salah Uddin, Gazi, 2013. "Does J-Curve Phenomenon Exist in Case of Laos? An ARDL Approach," MPRA Paper 48084, University Library of Munich, Germany, revised 04 Jul 2013.
  3. Nikolaychuk Sergiy & Shapovalenko Nadiia, 2013. "The identification of the sources of current account fluctuations in Ukraine," EERC Working Paper Series 13/12e, EERC Research Network, Russia and CIS.
  4. Baharumshah, Ahmad Zubaidi & Soon, Siew-Voon & Boršič, Darja, 2013. "Real interest parity in Central and Eastern European countries: Evidence on integration into EU and the US markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 25(C), pages 163-180.
  5. Pavle Petrović & Mirjana Gligorić, 2010. "Exchange Rate and Trade Balance: J-curve Effect," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 57(1), pages 23-41, March.

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