Dynamics of the trade balance: The Turkish J-curve

Elif Akbostanci ()
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Elif Akbostanci: Department of Economics, METU

No 205, ERC Working Papers from ERC - Economic Research Center, Middle East Technical University

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.

Keywords: J-Curve; trade balance; Marshall-Lerner condition; cointegration; impulse response analysis (search for similar items in EconPapers)
JEL-codes: F30 F32 F41 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2002-05, Revised 2002-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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http://erc.metu.edu.tr/en/system/files/menu/series02/0205.pdf First version, 2002 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:met:wpaper:0205

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