Empirical analysis of the J-Curve and Marshall-Lerner condition: impacts of macroeconomic shocks on the Brazilian trade balance using a Bayesian SVAR Identified via heteroskedasticity

Abstract

ABSTRACT This study examines the impacts of macroeconomic shocks on the Brazilian trade balance, disaggregated into five sectors, using a Bayesian SVAR model identified via heteroskedasticity. We find significant evidence supporting the Marshall-Lerner condition across all sectors analysed. Although we have not observed significant evidence supporting the J-curve, there is a higher probability of the phenomenon occurring than not occurring. Additionally, our findings indicate that a world GDP shock influences the domestic trade balance with the expected sign. A ‘pessimism’ shock regarding domestic economic activity leads to an improvement in the trade balance. Moreover, it is observed that an increase in GDP, even when caused by a supply shock, leads to a deterioration of the trade balance in the medium term.