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Dynamics of the trade balance: The Turkish J-curve

Author

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  • Elif Akbostanci

    () (Department of Economics, METU)

Abstract

The J-curve hypothesis suggests a specific pattern for the response of trade balance to real exchange rate changes: a real depreciation initially worsens the trade balance, but through time the trade balance improves, and thus the response of the trade balance over time generates a tilted J shape. This study investigates the existence of a J-curve in the Turkish data in the period of 1987-2000, by using quarterly data. First an error correction model is estimated to differentiate between the long-run equilibrium and short-run dynamics. Then the response of trade balance to real exchange rate shocks are investigated by using the generalized impulse response methodology. Even though the suggested long-run pattern, which is the improvement of the trade balance in response to a real depreciation emerges, our results do not exactly support the J-curve hypothesis in the short-run. In this study we found that the short-run behavior of the trade balance in response to real exchange rate shocks show an S-pattern reminiscent of the Backus et al (1994) rather than the J-curve pattern.

Suggested Citation

  • Elif Akbostanci, 2002. "Dynamics of the trade balance: The Turkish J-curve," ERC Working Papers 0205, ERC - Economic Research Center, Middle East Technical University, revised May 2002.
  • Handle: RePEc:met:wpaper:0205
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    File URL: http://www.erc.metu.edu.tr/menu/series02/0205.pdf
    File Function: First version, 2002
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    References listed on IDEAS

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    Cited by:

    1. Hicham Sadok, 2018. "The Effect of Exchange Rates on Trade Balance: An Empirical Study of Morocco," GATR Journals jber151, Global Academy of Training and Research (GATR) Enterprise.
    2. Shahbaz, Muhammad & Jalil, Abdul & Islam, Faridul, 2010. "Real Exchange Rate Changes and Trade Balance in Pakistan: A Revisit," MPRA Paper 27631, University Library of Munich, Germany.

    More about this item

    Keywords

    J-Curve; trade balance; Marshall-Lerner condition; cointegration; impulse response analysis;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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