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The J-curve in the emerging economies of Eastern Europe

Author

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  • Mohsen Bahmani-Oskooee
  • Ali Kutan

Abstract

Devaluation or depreciation of a currency worsens the trade balance before improving it, resulting in a J-curve pattern. A new definition of the hypothesis implies a short-run deterioration combined with the long-run improvement. By using monthly data over the January 1990-June 2005 period from 11 east European emerging economies, most of which are the new European Union (EU) members or the EU candidate countries, this article uses the bounds testing approach to cointegration and error-correction modelling and finds empirical support for the J-curve hypothesis in three countries of Bulgaria, Croatia and Russia. The results have important implications for policymakers involved in economics in terms of using exchange rate policy as a policy device to achieve real convergence toward EU standards.

Suggested Citation

  • 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.
  • Handle: RePEc:taf:applec:v:41:y:2009:i:20:p:2523-2532
    DOI: 10.1080/00036840701235696
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    Citations

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    Cited by:

    1. Kyophilavong, Phouphet & Shahbaz, Muhammad & Uddin, Gazi Salah, 2013. "Does J-curve phenomenon exist in case of Laos? An ARDL approach," Economic Modelling, Elsevier, vol. 35(C), pages 833-839.
    2. Mohsen Bahmani-Oskooee & Rustam Jamilov, 2014. "Export diversification and the S-curve effect in a resource-rich state: evidence from Azerbaijan," Economic Change and Restructuring, Springer, vol. 47(2), pages 135-154, May.
    3. Nikolaychuk Sergiy & Shapovalenko Nadiia, 2013. "The identification of the sources of current account fluctuations in Ukraine," EERC Working Paper Series 13/12e, EERC Research Network, Russia and CIS.
    4. Dan Lupu & Mircea Asandului, 2014. "Exchange Rate and Trade: J-curve in European Union," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 10(3), pages 136-145, June.
    5. Jana Šimáková, 2016. "Assessing the Exchange Rate Sensitivity of Bilateral Agricultural Trade in Visegrad Countries," Working Papers 0033, Silesian University, School of Business Administration.
    6. repec:agr:journl:v:xxiv:y:2017:i:2(611):p:171-186 is not listed on IDEAS
    7. repec:pal:easeco:v:43:y:2017:i:4:d:10.1057_eej.2015.45 is not listed on IDEAS
    8. repec:rfe:zbefri:v:35:y:2017:i:2:p:277-299 is not listed on IDEAS
    9. Mine Yilmazer & Serkan Çinar, 2015. "Human Capabilities and Economic Growth: A Comparative Human Capability Index," International Journal of Economics and Financial Issues, Econjournals, vol. 5(4), pages 843-853.
    10. Martin Falk, 2008. "Determinants of the Trade Balance in Industrialized Countries," FIW Research Reports series I-013, FIW.
    11. Almira Buzaushina, 2015. "Trade elasticities in transition countries," International Economics and Economic Policy, Springer, vol. 12(2), pages 309-335, June.
    12. Jana ŠIMÁKOVÁ, 2014. "The Effects of Exchange Rate Change on the Trade Balance of Slovakia," European Financial and Accounting Journal, University of Economics, Prague, vol. 2014(3).
    13. Baharumshah, Ahmad Zubaidi & Soon, Siew-Voon & Boršič, Darja, 2013. "Real interest parity in Central and Eastern European countries: Evidence on integration into EU and the US markets," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 25(C), pages 163-180.
    14. repec:eee:ecosys:v:41:y:2017:i:2:p:279-296 is not listed on IDEAS
    15. Jana Šimáková & Daniel Stavárek, 2015. "The Effect of the Exchange Rate on Industry-Level Trade Flows in Czechia," Working Papers 0001, Silesian University, School of Business Administration.
    16. Pavle Petrović & Mirjana Gligorić, 2010. "Exchange Rate and Trade Balance: J-curve Effect," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 57(1), pages 23-41, March.
    17. Prakash, Kushneel & Maiti, Dibyendu, 2016. "Does devaluation improve trade balance in small island economies? The case of Fiji," Economic Modelling, Elsevier, vol. 55(C), pages 382-393.

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