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Asymmetric Cointegration, Nonlinear ARDL, and the J-Curve: A Bilateral Analysis of China and Its 21 Trading Partners

Mohsen Bahmani-Oskooee (), Niloy Bose and Yun Zhang

Emerging Markets Finance and Trade, 2018, vol. 54, issue 13, 3131-3151

Abstract: This article follows the nonlinear Autoregressive Distributed Lag (ARDL) error-correction methodology to explore nonlinearity in the relationship between the trade balances and the real exchange rates for China and its 21 partners. We find evidence for short-run asymmetric effects of exchange rate in cases of 18 partners, short-run adjustment asymmetry in cases of 11 partners, short-run cumulative asymmetry in cases of seven partners, and a significant long-run asymmetric effect cases of five partners. We find support for the “J-curve” that is only due to appreciation or depreciation of the Yuan in cases of five partners, including the U.S.

Date: 2018
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