经济学中重要概念thejcurveeffect.docVIP

The J curve effect In the short term a devaluation or depreciation of the exchange rate may not improve the current account deficit of the balance of payments. This is due to the low price elasticity of demand for imports and exports in the immediate aftermath of an exchange rate change. The diagram below shows this possibility. Assuming that the economy begins at position A with a substantial current account deficit there is then a fall in the value of the exchange rate. Initially the volume of imports will remain steady partly because contracts for imported goods will have been signed.? However, the depreciation raises the sterling price of imports causing total spending on imports to rise. Export demand will also be inelastic in response to the exchange rate change in the short term, therefore the earnings from exports may be insufficient to compensate for higher spending on imports. The current account deficit may worsen for some months. This is shown by the movement from A to B on the diagram. Expenditure Switching causes a change in trade volumes Providing that the elasticities of demand for imports and exports are greater than one in the longer term then the trade balance will improve over time. This is known as the Marshall-Lerner condition.? In the diagram above showing the J curve effect, as demand for exports picks up and domestic consumers switch their spending away from imported goods and services, the overall balance of payments starts to improve. This is shown by the movement A to C on the diagram. There is some evidence for the J Curve effect shown in the diagram above which shows the quarterly balance of trade in goods and the average value for the sterling exchange rate index between 1990-2000. In late 1992 the pound was devalued by nearly 15% following the United Kin gdoms exit from the European Exchange Rate Mechanism. The sharp fall in the exchange rate provided a welcome boost to the competitiveness of UK producers - but in the short ter