What does the empirical evidence say about the J-curve effect?

Question

BlackTom AI · Accepted Answer

The J-curve describes a short-run deterioration and a later improvement in a country's trade balance after a currency depreciation (or the mirror effect after appreciation).

1) Relevant knowledge points and concepts
- Price and quantity effects: a currency depreciation raises the domestic-currency price of imports immediately, while export volumes typically respond more slowly.  
- Marshall‑Lerner condition: in the long run, if the sum of absolute price elasticities of exports and imports exceeds one, a depreciation improves the trade balance.  
- Adjustment frictions: invoicing currency, contracts, menu costs, transport times and production lags cause delays in quantity responses. Empirical literature on the J-curve finds the adjustment is not instantaneous but occurs over several years.

2) Step-by-step reasoning
- Immediately after a depreciation: import prices in domestic currency rise; import volumes change little because contracts and adjustment costs persist → import value rises and the trade balance often worsens (downward leg of the J).  
- Over subsequent periods: foreign demand responds to cheaper exports and domestic consumers substitute away from relatively more expensive imports → export volumes rise and import volumes fall → trade balance improves, eventually exceeding the pre-depreciation level (upward leg).

3) Illustrative numerical intermediate steps
- Start: exports = 100, imports = 80, trade balance = +20. Suppose a 10% depreciation.  
- Immediate effect (very short run): imports price +10%, import quantity −1% (contract inertia) → import value ≈ 80 × 1.10 × 0.99 ≈ 87.1; exports unchanged at 100 → trade balance ≈ 12.9 (worse).  
- After 1–3 years (quantities adjust): year 1 quantities change modestly (exports +5% → 105; imports −5% → 76): import value ≈ 76 × 1.10 = 83.6, trade balance ≈ 21.4 (better than start). By year 2–3 further adjustment may occur, reaching the full long-run effect. These simple calculations illustrate an initial fall then recovery over a few years.

4) Why the correct answer is correct
- Empirical studies commonly find that the complete pass‑through of exchange rate changes into trade balances takes several years because quantities adjust slowly. The consensus range from many empirical investigations is roughly 2–4 years for the full J‑curve effect to materialize.

5) Why the other options are incorrect
- “6–7 years”: longer than the typical empirical consensus; some individual cases might show longer adjustment, but the broad evidence centers on 2–4 years.  
- “Almost immediately”: contradicts observed contract/invoicing frictions and the documented initial deterioration in many studies.  
- “1–2 years”: can be too short; while some partial adjustment occurs within 1–2 years, the full impact is usually not complete that quickly according to the empirical literature.

6) Conclusion
Empirical evidence typically indicates the full impact of a currency appreciation/depreciation on trade balances appears over about 2–4 years. This matches the provided correct answer.

What does the empirical evidence say about the J-curve effect?单项选择题

类似问题

Firm A does not export any of its products Firm B exports the majority of its products. Firm B has:

In the example we worked on in class, Japan's Grubel-Lloyd index in autos was highest with ...

China exports 180 million dollar tires to the U.S. The U.S. exports 20 million dollar tires to China. The Grubel-Lloyd index for this case is ...

Firm A does not export any of its products Firm B exports the majority of its products. Firm A has:

Firm A does not export any of its products Firm B exports the majority of its products. Firm B has:

Which of the following helps to explain why a country in a recession is more likely to run a trade surplus? Check all correct answers Each choice is worth 1 point, which you will receive if you correctly either check or do not check the choice

Assume Indonesia and Australia are major trading partners. If Indonesian incomes rise relative to Australia's, ceteris paribus, we should expect

更多留学生实用工具

智能学习助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单