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Exchange Rate Changes and the J-curve Effect: Asymmetric Evidence from a Panel of Five Emerging Market Economies

Author

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  • Waseem Ahmad Parray
  • Javed Ahmad Bhat
  • Effat Yasmin
  • Sajad Ahmad Bhat

Abstract

Using the symmetric and asymmetric specifications of the pooled mean group estimator, we attempted to scrutinise the possibility of the J-curve effect in the case of Brazil, Russia, India, China and South Africa. In addition to both real effective exchange rate changes and nominal effective exchange rate changes, the possible impact of domestic and foreign demand pressures on the trade balance is also estimated. Incorporating a quarterly data set spanning from 2000Q1 to 2020Q2, the results based on the symmetric and asymmetric model establish no evidence of the J-curve phenomenon. However, when asymmetric possibilities are considered, appreciation is found to deteriorate the trade balance relatively by a greater magnitude whereas the impact of currency depreciation is insignificant. In addition, no asymmetric evidence has been reported concerning the effect of domestic and foreign demand. However, a hike in the former deteriorated the trade balance whereas an increase in the latter improved it in both linear and non-linear frameworks. JEL Codes: F4, F41, F42

Suggested Citation

  • Waseem Ahmad Parray & Javed Ahmad Bhat & Effat Yasmin & Sajad Ahmad Bhat, 2023. "Exchange Rate Changes and the J-curve Effect: Asymmetric Evidence from a Panel of Five Emerging Market Economies," Foreign Trade Review, , vol. 58(4), pages 524-543, November.
    • Handle: RePEc:sae:fortra:v:58:y:2023:i:4:p:524-543
    DOI: 10.1177/00157325221145432
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    References listed on IDEAS

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    More about this item

    Keywords

    Exchange rate; trade balance; asymmetry; BRICS; PNARDL;
    All these keywords.

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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