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Exchange Rate and Trade Balance: J-curve Effect

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  • Pavle Petrović

    ()
    (Faculty of Economics, University of Belgrade, Serbia)

  • Mirjana Gligorić

    ()
    (Faculty of Economics, University of Belgrade, Serbia)

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    Abstract

    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.

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    Bibliographic Info

    Article provided by Savez ekonomista Vojvodine, Novi Sad, Serbia in its journal Panoeconomicus.

    Volume (Year): 57 (2010)
    Issue (Month): 1 (March)
    Pages: 23-41

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    Handle: RePEc:voj:journl:v:57:y:2010:i:1:p:23-41

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    Web page: http://www.panoeconomicus.rs/

    Related research

    Keywords: Exchange rate and trade balance; J-curve; Cointegration; Autoregressive distributed lag approach.;

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    References

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    1. Noland, Marcus, 1989. "Japanese Trade Elasticities and the J-Curve," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 175-79, February.
    2. MacKinnon, James G & Haug, Alfred A & Michelis, Leo, 1999. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 563-77, Sept.-Oct.
    3. Kanta Marwah & Lawrence R. Klein, 1996. "Estimation of J-Curves: United States and Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 29(3), pages 523-39, August.
    4. Ivohasina Fizara Razafimahefa & Shigeyuki Hamori, 2005. "Import Demand Function: Some Evidence from Madagascar and Mauritius," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 14(3), pages 411-434, September.
    5. Mohsen Bahmani-Oskooee & Ali Kutan, 2009. "The J-curve in the emerging economies of Eastern Europe," Applied Economics, Taylor & Francis Journals, vol. 41(20), pages 2523-2532.
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    Cited by:
    1. Tiwari, Aviral & Shahbaz, Muhammad, 2011. "India's trade with USA and her trade balance: An empirical analysis," MPRA Paper 29023, University Library of Munich, Germany.

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