J-curve effect

J-curve effect

the tendency for a country's BALANCE OF PAYMENTS deficit to initially worsen following a DEVALUATION of its currency before then moving into surplus. This is because the full adjustment of trade volumes to devaluation involves a time lag: there is an immediate fall in export prices and a rise in import prices so current exports earn less foreign exchange and current imports absorb more foreign exchange, thereby increasing the size of the payment deficit (the downturn of the J-curve). Over time, however, the lower export prices will increase overseas demand and export earnings will rise, while higher import prices will reduce domestic demand for imports, leading to an improvement in the balance of payments (the upturn of the J-curve).

See BALANCE OF PAYMENTS EQUILIBRIUM.

References in periodicals archive ?
The first one investigated J-curve effect on devaluation.
He added that it takes a considerable amount of time for the weakening of a currency to affect exports, citing the J-curve effect.
Over time, however, it was expected that Japan's trade balance would improve in line with the J-curve effect as the weaker yen translates into lower and hence more competitive export prices of Japanese products, which in turn would lead to a rise in the volume of exports.
Although many studies on the J-curve effect have been published, few of them focus on Central and Eastern European (CEE) countries and Czechia in particular.
According to Preqin, this appeared to be a response to investors' search for opportunities that offered lower fees, improved transparency and mitigation of the J-curve effect, in which returns first drop below initial value and later show profits exceeding the initial level.
They did not find any evidence of a J-curve effect, but discovered a significant long-run relationship between trade balance and the exchange rate --indicating that a real depreciation of the U.
a (2004a) for an extensive review of the empirical literature investigating the J-Curve effect.
That is the reason why our exports are also not responding to the fluctuations in exchange rate and giving us the benefits of J-curve effect.
Now, amidst the debate about economic reforms in Europe, another kind of J-curve effect is upon us.
Results show that there is a clear J-curve effect and also Marshall-Lerner condition holds.
Over the sample period 1981:1-1993:12, we find, while there is a slight dampening of the response of the trade account and its components over the NAFTA period relative to the pre-NAFTA period, a J-curve effect does not occur over both periods.
The J-curve effect of food aid on commercial food imports is clear in this graphic.