Estimation of the J-curve effect in the bilateral trade of Hungary

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Resulting in a J-curve pattern, the devaluation or depreciation of a currency worsens the trade balance before improving it.The aim of the paper is to investigate the J-curve effect in bilateral trade flows between Hungary and its major trading partners: Germany, Austria, Italy, France, the Netherlands, the United Kingdom, Poland and the Czech Republic.This paper explores the J-curve effect using quarterly data over the period 1997-2012.We include bilateral export and import flows, GDP and nominal bilateral exchange rates in the models.We employ a Johansen cointegration test to analyse the long run relationship between variables.The short run effects and related J-curve effect are explored by estimating an error correction model and by assessing impulse response functions.A typical J-curve effect is detected in bilateral trade flows with the United Kingdom.In trade flows with Austria and Italy, a partial J-curve can be observed.In bilateral trade with the Czech Republic, we explore an inverse J-curve.In other cases, the coefficient estimates follow any specific pattern.