J

Abstract

J Curve. In the period immediately following a depreciation or devaluation of its currency a country may experience a balance of payments deficit. In the subsequent period however this will be eliminated and the current account slowly moves into surplus. The J curve is so named since it describes the shape of the time path the current account figures may follow if time is plotted on the horizontal axis and the balance of trade on the vertical. In explanation of these events it is usually argued that the volume of exports and imports respond only slowly to the change in relative prices that the devaluation has introduced and therefore imports remain high and exports low in the immediate post-devaluation period. Moreover when both exporters and importers quote prices in their own currency the foreign currency receipts from exports will decline while the amount of domestic currency paid for imports will rise.