The J-curve: evidence from commodity trade between US and China

Mohsen Bahmani‐Óskooee · Yongqing Wang

58 citations0/0 files storedApplied Economics

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Monetary Policy and Economic Impact Global trade and economics Global Financial Crisis and Policies

Abstract

In testing the short-run (J-curve effect) and the long-run effects of currency depreciation on the trade balance many researchers have used either trade data between one country and the rest of the world or between one country and another trading partner. Both groups are said to suffer from aggregation bias. To reduce the bias, in this article we consider trade data between one country (the US) and her trading partner (China) disaggregated by commodity. We use imports and exports of 88 industries (2-digit and 3-digit classifications) and cointegration analysis to show that the trade balance of at least 34 of the industries react favourably to real depreciation of the dollar. The J-curve effect is detected in 22 industries. Furthermore, most of these industries that are sensitive to currency depreciation are durable commodity groupings.

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References

1987Co-Integration and Error Correction: Representation, Estimation, and Testing 2001Bounds testing approaches to the analysis of level relationships 1993FINITE‐SAMPLE SIZES OF JOHANSEN's LIKELIHOOD RATIO TESTS FOR COINTEGRATION 1989Is there a J-curve?1973Currency Contracts, Pass-Through, and Devaluation 1991Cointegration: how short is the long run?1960Economia Internazionale.2004The J-Curve: a literature review

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