The J-Curve: Evidence from Industry-Level Data Between the U.S. and Indonesia

Abstract

Empirical studies on the impact of currency devaluation or depreciation on the trade balance still continue to occupy the literature. These studies have evolved from using aggregate to disaggregated data. The findings, however, have been mixed. Previous research using aggregate trade flows of Indonesia with the rest of the world or bilateral data between Indonesia and the U.S. as one of its major trading partners found no significant relation between rupiah-dollar rate and Indonesia’s bilateral trade balances. In this article, we disaggregate the trade flows between Indonesia and the U.S. by commodity and show that the trade balances of at least nine out of 23 industries react to exchange rate changes favorably in the long run.

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