The J-curve revisited: an empirical examination for the United States

Abstract

This paper examines empirical evidence for trade prices and quantities for the United States to determine whether J-Curve effects have occurred in recent history. Empirical estimates of exchnage rate pass-through and trade volume responses to exchange rate changes for the 1967 to 1987 period indicate that the often-told tale of trade balance deterioration and then improvement—the J-shaped adjustment path—has not typically been experienced by the United States. Expenditures on imports have typically increased following dollar depreciations primarily as a result of relatively inelastic import volume responses. Export earnings have been seen to rise only marginally during these same dollar depreciations due to increases in export prices and the subsequent reductions induced in export volume. The long-run merchandise trade balance adjustment path is seen to resemble a sine wave rather the a J.