The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd


  • Giorgia Giovannetti
Reference work entry


The J curve is the description of an empirical phenomenon: the trade balance worsens immediately after a depreciation of the exchange rate, to improve in the longer term. This pattern can be ascribed to different speed of adjustment of trade prices and volumes to changes in exchange rates. Several models have been put forward, suggesting explanations for these lags that are not mutually exclusive. While the empirical evidence is not conclusive, to assess the existence of a J-curve adjustment path is relavant since the J-curve may induce dynamic instability in the exchange rates.


Balance of trade Common pool problem Consumption habits Currency depreciation Hysteresis J-curve Marshall–Lerner conditions Real business cycles Structural vector autoregressions Sunk costs Technology shocks Terms of trade 

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Authors and Affiliations

  • Giorgia Giovannetti
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