Testing the J-Curve Hypothesis for the USA: Applications of the Nonlinear and Linear ARDL Models

Serdan Ongar, Dilek Ozdemir and Cem Işık
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Serdan Ongar: Department of Economics, St. Mary's College of Maryland, USA
Dilek Ozdemir: Department of Economics, Ataturk University, Turkey

South-Eastern Europe Journal of Economics, 2018, vol. 16, issue 1, 21-34

Abstract: This paper investigates the evidence of the J-curve hypothesis between the United States, a country which has the world's largest trade deficits and an anchor currency, and its main 12 trading partner countries over the period 1991M1–2015M2. To this aim, we apply both linear and nonlinear Autoregressive Distributed Lag (ARDL) cointegration approaches and error-correction model (ECM). The nonlinear ARDL approach, recently introduced by Shin et al. (2014), allows us to examine the separate effects of both the appreciations and depreciations of the USD on the trade balances of the country. The empirical results indicate that while the linear approach supports the evidence of the J-curve for the USA with only 4 trading partners, the nonlinear approach supports such evidence with 8 trading partners. This implies that the nonlinear approach provides more evidence of the hypothesis than the linear approach. Therefore, this study reveals that existing but concealed potential evidence for the J-curve effect may be discovered with the nonlinear approach, which allows for nonlinearity in the adjustment process. Another empirical finding of this study is that depreciations in the USD seem to have more distinct long-run effects on the US trade balances than appreciations.

Keywords: J-curve; Linear and Nonlinear ARDL Cointegration; ECM; Asymmetry; the USA (search for similar items in EconPapers)
JEL-codes: F10 F14 F31 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (2)

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