Dynamics of the Trade Balance: The Turkish J-Curve

Elif Akbostanci

Emerging Markets Finance and Trade, 2004, vol. 40, issue 5, 57-73

Abstract: The J-curve hypothesis suggests a specific pattern for the response of the 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 1987-2000 period 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 is 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.

Keywords: cointegration; impulse response analysis; J-curve; Marshall; Lerner condition; trade balance (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (33)

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