The J Curve Of International Economics

Students of international economics are familiar with what is called the J curve, which shows the relationship between trade balance and depreciation of currency. Following depreciation of a country's currency (e.g., due to devaluation), initially the trade balance deteriorates but eventually it improves, assuming other things are the same. The curve is as shown in Figure 17.4.

Current account (in domestic output units)

Current account (in domestic output units)

Real depreciation takes End of place and J curve begins J curve

FIGURE 17.4 The J curve.

Source: Paul R. Krugman and Maurice Obstfeld, International Economics: Theory and Practice, 3d ed., Harper Collins, New York, 1994, p. 465.

Real depreciation takes End of place and J curve begins J curve

FIGURE 17.4 The J curve.

Source: Paul R. Krugman and Maurice Obstfeld, International Economics: Theory and Practice, 3d ed., Harper Collins, New York, 1994, p. 465.

3Zvi Griliches, "Distributed Lags: A Survey,'' Econometrica, vol. 36, no. 1, January 1967, pp. 16-49.

Models: Autoregressive and Distributed-Lag Models

662 PART THREE: TOPICS IN ECONOMETRICS

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