Testing J-curve hypothesis and analysing the effect of exchange rate volatility on the balance of trade in India

Singh, Tarlok

doi:10.1007/s00181-003-0162-8

Cited by 32 publications

(22 citation statements)

References 31 publications

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“…And finally, a value below the lower critical value suggests that the variables are not cointegrated. The short-run coefficient at the aggregate level is −1.28 (Table 5.2), which is in line with that obtained by Singh (2004). 16 The long-run coefficient is also negative (−2.88).…”

Section: Aggregate and Bilateral Tradesupporting

confidence: 88%

“…In a study using the cointegration and ECMs, Rose (1990) finds that there is no strong relation between the REER and the trade balance using three-stage least squares regression on the annual and quarterly data for 30 developing countries including India for the period 1970-88. Similarly, Singh (2004) does not find the presence of a J-curve in the relation between the exchange rate devaluation (using both trade-based and export-based REER) and trade balance for India in his analysis of quarterly data from 1972q2 to 1996q3 using an ECM. The innovation in his study is the use of the GARCH model for the estimates of the REER.…”

Section: J-curve Effects For Indiamentioning

confidence: 89%

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Managing the Macroeconomy

Rajan¹,

Yanamandra²

2015

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Section: Aggregate and Bilateral Tradesupporting

confidence: 88%

Section: J-curve Effects For Indiamentioning

confidence: 89%

Managing the Macroeconomy

Rajan¹,

Yanamandra²

2015

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“…Narayan (2004) used cointegration method to examine the response of trade balance to currency depreciation in New Zealand and found that the trade balance worsened for the first three years and improved thereafter, indicating the J-curve pattern. However, Singh (2004) did not find similar result for India. He estimated the balance of trade model to test the J-curve hypothesis and analysed the effect of exchange rate volatility on the balance of trade in India for quarterly data from 1975 to 1996.…”

Section: Review Of Literaturecontrasting

confidence: 35%

Sensitivity of Trade Balance to Exchange Rate Depreciation: Evidence from Indo-U.S. Bilateral Trade

Venkatraja¹

2018

Asian Economic and Financial Review

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Article History JEL Classification:F31; F32; F41.The fundamental economic theories presume a relationship between exchange rate and trade balance that depreciation in the exchange rate would affect trade balance. Magee (1973) formulated a hypothesis that for a given currency devaluation or depreciation, the trade balance reacts differently in short run and long run. It has been argued that with the depreciation of domestic currency the trade balance deteriorates in the short run and improves in the long run leading to J-shaped pattern of response. Since then some studies have empirically investigated the J-curve hypothesis with mixed results. The theory is hardly tested to Indian scenario. The present study, hence, examines the nature of response of India's trade balance to exchange rate shocks. The study specially focuses on the response of India's bilateral trade with U.S for continuous depreciation of Indian rupee against U.S dollar. The study uses monthly data for the period from 2009 to 2017. Using the VAR methodology, the Impulse Response Function has been fitted and the results do not have evidence for J-curve pattern of trade balance rather it appears to be 'inverted J-curve'. Contribution/ Originality:This study contributes to the existing literature as it disproves the theoretical perception at least in Indian scenario that currency depreciation/devaluation would accelerate exports in the long run. The result has policy significant implications. The paper contributes immensely to the policy makers towards perusing appropriate exchange rate and export policies.

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“…4% of GDP during 20014% of GDP during -20024% of GDP during to 20034% of GDP during -2004. The external position again started deteriorating since the mid-2000s in that the CADs, as a percentage of GDP, progressively rose from 1% in 2006-2007 to 1.3% in 2007-2008, 2.3% in 2008-2009 and 2.8% in 2009-2010. Several studies have examined the CADs and external position in India in the wider context of macroeconomic assessment of the economy Little, 1994, 1996;Cerra and Saxena, 2002;Singh, 2002Singh, , 2004aAgarwal and Whalley, 2013). A highly limited attempt, however, has been made to assess the sustainability of CADs in an intertemporal Sustainability of current account deficits in India setting Cashin, 1999, 2002;Singh, 2004b;Holmes et al, 2011).…”

Section: Introductionmentioning

confidence: 97%

Sustainability of current account deficits in India: an intertemporal perspective

Singh

2015

Applied Economics

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This study examines the sustainability of current account deficits (CADs) and the validity of intertemporal budget constraint (IBC) in India. The long-run model is estimated on annual data for the period 1950-1951 to 2009-2010. The optimal single-equation and maximum-likelihood (ML) system estimates of the model provide a consistent support for the longrun relationship between imports and exports. The OLSGH estimates provide no support and that ML system estimates a consistent support for cointegration in both the models estimated with one and two structural breaks in level. The new cointegration breakdown tests generally suggest that the cointegration prevails from 1951 to 2010. The evidence supporting the cointegration between imports and exports overwhelms the evidence providing a mixed or no support for cointegration. The estimates of slope parameter above zero and the dominant support for cointegration between imports and exports vindicate the validity of IBC and the sustainability of CADs. The short-term management strategies need to be accompanied by long-term improvements in productivity to reduce inflation, lever up the competitiveness of exports and ensure the sustainability of the external value of domestic currency.

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Testing J-curve hypothesis and analysing the effect of exchange rate volatility on the balance of trade in India

Cited by 32 publications

References 31 publications

Managing the Macroeconomy

Managing the Macroeconomy

Sensitivity of Trade Balance to Exchange Rate Depreciation: Evidence from Indo-U.S. Bilateral Trade

Sustainability of current account deficits in India: an intertemporal perspective

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