Test of an inverted J-curve hypothesis between the expected real exchange rate and real output: the case of Hungary

Yu Hsing

International Journal of Economics and Business Research, 2011, vol. 3, issue 2, 166-175

Abstract: Applying a reduced form equation derived from a simultaneous system and the interactive dummy variable technique, this paper finds that expected real depreciation raises real output for Hungary in early years whereas expected real appreciation increases real output in later years. Hence, there is evidence of an inverted J-curve relationship between the expected real exchange rate and real output. In addition, a lower ratio of government consumption spending to GDP, a higher real financial stock price, and/or a lower expected inflation rate would increase real GDP for Hungary.

Keywords: expected appreciation; real appreciation; expected depreciation; real depreciation; monetary policies; reaction functions; uncovered interest parity; J-curve relationships; inverted J-curve; real exchange rates; real output; expected exchange rates; Hungary; reduced form equations; simultaneous systems; interactive dummy; variable techniques; government spending; government consumption; GDP; gross domestic product; stock prices; inflation rates; economics; business research. (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijecbr:v:3:y:2011:i:2:p:166-175

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