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The J-curve Revisited: An Empirical Analysis for Canada

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  • George Georgopoulos

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    Abstract

    This paper examines exchange rate and trade data to determine whether J-curve effects have occurred for Canada in recent history. With a unique set of data on import and export volumes, the response of the trade balance and its components to exchange rate changes are determined empirically over 1981:1–2005:12 through impulse response functions. The responses have taken into account dominant long-run feedback effects, where the long-run parameters have been estimated by the Johansen cointegration technique. The results show the J-curve phenomenon does not exist for Canada. Robustness checks show the results do not change when looking at the responses over the pre-NAFTA and NAFTA periods. Copyright International Atlantic Economic Society 2008

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    File URL: http://hdl.handle.net/10.1007/s11293-008-9124-z
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    Article provided by Springer & International Atlantic Economic Society in its journal Atlantic Economic Journal.

    Volume (Year): 36 (2008)
    Issue (Month): 3 (September)
    Pages: 315-332

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    Handle: RePEc:kap:atlecj:v:36:y:2008:i:3:p:315-332
    DOI: 10.1007/s11293-008-9124-z
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    Keywords: J-curve; Exchange rate pass-through; Vector autoregressions; Impulse response function; Cointegration; E40; F10; F30; F41;

    Find related papers by JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • F10 - International Economics - - Trade - - - General
    • F30 - International Economics - - International Finance - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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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.
    2. 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.
    3. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September.
    4. Moffett, Michael H., 1989. "The J-curve revisited: an empirical examination for the United States," Journal of International Money and Finance, Elsevier, vol. 8(3), pages 425-444, September.
    5. Head, Keith & Ries, John, 1999. "Rationalization effects of tariff reductions," Journal of International Economics, Elsevier, vol. 47(2), pages 295-320, April.
    6. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    7. 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.
    8. 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.
    9. 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 523-539, August.
    10. Lawrence Schembri, 1989. "Export Prices and Exchange Rates: An Industry Approach," NBER Chapters,in: Trade Policies for International Competitiveness, pages 185-216 National Bureau of Economic Research, Inc.
    11. Mohsen Bahmani-Oskooee & Artatrana Ratha, 2004. "The J-Curve: a literature review," Applied Economics, Taylor & Francis Journals, vol. 36(13), pages 1377-1398.
    12. repec:hhs:iuiwop:556 is not listed on IDEAS
    13. Robert C. Feenstra, 1989. "Trade Policies for International Competitiveness," NBER Books, National Bureau of Economic Research, Inc, number feen89-1.
    14. Dornbusch, Rudiger, 1987. "Exchange Rates and Prices," American Economic Review, American Economic Association, vol. 77(1), pages 93-106, March.
    15. Phillips, Peter C. B., 1998. "Impulse response and forecast error variance asymptotics in nonstationary VARs," Journal of Econometrics, Elsevier, vol. 83(1-2), pages 21-56.
    16. Johan Stennek & Frank Verboven, 2006. "Merger Control and Enterprise Competitiveness: Empirical Analysis and Policy Recommendations," Chapters,in: European Merger Control, chapter 4 Edward Elgar Publishing.
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