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The bilateral J-Curve hypothesis between Turkey and her 9 trading partners

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Kimbugwe, Hassan

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Abstract

Applying ARDL Cointegration, Johansen modelling and generalised impulse response function analyses in this paper, we provide new evidence for the Turkish Bilateral J-curve hypothesis in the short and long-run using both annual aggregated and disaggregated data over 1960 and 2000 period between Turkey and 9 of her major trading partners. We adopt a model that models the real trade balance directly as a function of real exchange rate and real domestic and foreign incomes to test for existence of any cointegration relationship and J-curve pattern. We apply the impulse response function analysis to determine whether shocks to real exchange rate induce the trade balance to follow the J-curve pattern. The results indicate that there is cointegration relationship between the above variables. We were unable to find any support for Turkish bilateral J-Curve hypothesis. However the generalised impulse response functions reveal that in some cases depreciation of the Turkish lira seems to improve the trade balance beyond the equilibrium level in the long-run.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 4254.

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Date of creation: 12 May 2006
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Handle: RePEc:pra:mprapa:4254

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Related research
Keywords: J-curve hypothesis; balance of trade; generalised impulse response function; Error Correction Model VAR model;

Find related papers by JEL classification:
C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General
F18 - International Economics - - Trade - - - Trade and Environment
C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions

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  1. Rose, Andrew K. & Yellen, Janet L., 1989. "Is there a J-curve?," Journal of Monetary Economics, Elsevier, vol. 24(1), pages 53-68, July. [Downloadable!] (restricted)
  2. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1994. "Dynamics of the Trade Balance and the Terms of Trade: The J-Curve?," American Economic Review, American Economic Association, vol. 84(1), pages 84-103, March. [Downloadable!] (restricted)
    Other versions:
  3. Mohsen Bahmani-Oskooee & Taggert Brooks, 1999. "Bilateral J-Curve between U.S. and her trading partners," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 135(1), pages 156-165, March. [Downloadable!] (restricted)
  4. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
  5. Bahmani-Oskooee, Mohsen & Bohl, Martin T., 2000. "German monetary unification and the stability of the German M3 money demand function," Economics Letters, Elsevier, vol. 66(2), pages 203-208, February. [Downloadable!] (restricted)
  6. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326. [Downloadable!]
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  8. Swarnjit Arora & Mohsen Bahmani-Oskooee & Gour Goswami, 2003. "Bilateral J-curve between India and her trading partners," Applied Economics, Taylor and Francis Journals, vol. 35(9), pages 1037-1041, January. [Downloadable!] (restricted)
  9. Demirden, Tuvana & Pastine, Ivan, 1995. "Flexible exchange rates and the J-curve: An alternative approach," Economics Letters, Elsevier, vol. 48(3-4), pages 373-377, June. [Downloadable!] (restricted)
  10. Pesaran, M. H. & Shin, Y. & Smith, R. J., 1996. "Testing for the 'Existence of a Long-run Relationship'," Cambridge Working Papers in Economics 9622, Faculty of Economics, University of Cambridge.
  11. Bahmani-Oskooee, Mohsen & Malixi, Margaret, 1992. "More evidence on the J curve from LDCs," Journal of Policy Modeling, Elsevier, vol. 14(5), pages 641-653, October. [Downloadable!] (restricted)
  12. Rose, Andrew K., 1990. "Exchange rates and the trade balance : Some evidence from developing countries," Economics Letters, Elsevier, vol. 34(3), pages 271-275, November. [Downloadable!] (restricted)
  13. Kremers, Jeroen J M & Ericsson, Neil R & Dolado, Juan J, 1992. "The Power of Cointegration Tests," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 325-48, August.
    Other versions:
  14. Bahmani-Oskooee, Mohsen, 1985. "Devaluation and the J-Curve: Some Evidence from LDCs," The Review of Economics and Statistics, MIT Press, vol. 67(3), pages 500-504, August. [Downloadable!] (restricted)
  15. Mohsen Bahmani-Oskooee & Mohammad Pourheydarian, 1991. "The Australian J-Curve: A Reexamination," International Economic Journal, Korean International Economic Association, vol. 5(3), pages 49-58, October. [Downloadable!] (restricted)
  16. Brissimis, Sophocles N. & Leventakis, John A., 1989. "The effectiveness of devaluation: A general equilibrium assessment with reference to Greece," Journal of Policy Modeling, Elsevier, vol. 11(2), pages 247-271. [Downloadable!] (restricted)
  17. 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. [Downloadable!] (restricted)
  18. Miles, Marc A, 1979. "The Effects of Devaluation on the Trade Balance and the Balance of Payments: Some New Results," Journal of Political Economy, University of Chicago Press, vol. 87(3), pages 600-20, June. [Downloadable!] (restricted)
  19. Lal, Anil K. & Lowinger, Thomas C., 2002. "Nominal effective exchange rate and trade balance adjustment in South Asia countries," Journal of Asian Economics, Elsevier, vol. 13(3), pages 371-383. [Downloadable!] (restricted)
  20. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September. [Downloadable!] (restricted)
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