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Nonlinear ARDL Approach and the J-Curve Phenomenon

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  • Mohsen Bahmani-Oskooee
  • Hadise Fariditavana

Abstract

Since introduction of cointegration and error-correction modeling, the definition of the J-curve has changed to reflect short-run deterioration combined with long-run improvement of the trade balance due to currency depreciation. Standard methods such as ARDL approach of Pesaran et al. (2001) assume that adjustment of variables follow a linear path. It is now recognized that the adjustment process could be nonlinear. Application of Non-linear ARDL approach of Shin et al. (2013) provides more evidence of the J-curve supporting non-linear adjustment of variables as well as asymmetric effects of exchange rate changes on the trade balance, using bilateral trade balance models of the U.S. with each of her six largest trading partners. Copyright Springer Science+Business Media New York 2016

Suggested Citation

  • Mohsen Bahmani-Oskooee & Hadise Fariditavana, 2016. "Nonlinear ARDL Approach and the J-Curve Phenomenon," Open Economies Review, Springer, vol. 27(1), pages 51-70, February.
    • Handle: RePEc:kap:openec:v:27:y:2016:i:1:p:51-70
    DOI: 10.1007/s11079-015-9369-5
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    Keywords

    J-Curve; Non-linear ARDL approach; Asymmetry effects; Bilateral trade balance; F31;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange

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