Dynamics of the trade balance - The Turkish J-curve

Akbostanci E.

EMERGING MARKETS FINANCE AND TRADE, vol.40, no.5, pp.57-73, 2004 (SSCI) identifier

  • Publication Type: Article / Article
  • Volume: 40 Issue: 5
  • Publication Date: 2004
  • Doi Number: 10.1080/1540496x.2004.11052584
  • Journal Name: EMERGING MARKETS FINANCE AND TRADE
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.57-73
  • Keywords: cointegration, impulse response analysis, J-curve, Marshall-Lerner condition, trade balance, IMPULSE-RESPONSE ANALYSIS, EXCHANGE-RATES, MULTIVARIATE MODELS, SERIES
  • Middle East Technical University Affiliated: Yes

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.