The Australian J-Curve: A Reexamination

Previous studies that have investigated the response of the Australian trade balance to a change in its exchange rate have concluded that depreciation of the Australian dollar has neither a short-run nor a long-run effect on the Australian trade balance. In this paper using quarterly data over the 1977I-1988I period, we show that in the short-run; the Australian trade balance follows a pattern of movement described by the “Delayed J-Curve ”. As for its long-run response, we provide statistically significant results, indicating that in the long-run devaluation improves the Australian trade balance. [F31]