The J-Curve Phenomenon in Jamaica: Fact or Fiction?

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Many researches have been conducted on the influence that the increasing exchange rate has on the trade balance deficit in developing countries. This paper contributes to the literature by investigating and testing whether the J-curve phenomenon exists in Jamaica. Meade (1988) stated that, because of the exchange rate rapid decline so much since early 1985 in the US and because the monthly trade statistics has been examined so thoroughly for any sign of a turnaround in the nominal trade balance, the J-curve phenomenon has received much attention. The statistics often implies that the negative effect of depreciation is reflected in the J-curve as the continuation of nominal trade deficit. Between early 1985 and 1988, the exchange value of US dollar in terms of currencies of other countries, registered a sizeable depreciation. The deficits recorded in the trade account were mirrored in the current account deficit. Meade depicted the significance of the exchange rate to the trade account as well as current account through the use of the J-curve highlighting that the phenomenon is used as a long-term goal to curb the deficits, however in the short-run, depreciation will increase the nominal deficits accumulated by a country. More recently, Bahamani-Oskooee and Ratha (2007) gave a synopsis of the J-curve phenomenon, the expectations and effects that will occur under this phenomenon. They stated that due to lag structure, currency devaluation or depreciation is said to worsen the trade balance first and improve it later resulting in a pattern that resemble the letter J, hence the J-Curve phenomenon. This phenomenon tests the short-run dynamics of the post-devaluation or depreciation time-path of the trade balance. While exchange rate ... ... middle of paper ... ...nternational Monetary Fund, 2006. Print Gordon, Peter-John. The Jamaican Economy: Recent Developments and Prospects, 2001. Print Haughton, Andre. Jamaica facing possible Currency Crisis. The Jamaican Gleaner , 2013 Print. Investopedia. www.investopedia.com Jessen, Anneke, and Christopher Vignoles. Jamaica: Trade, Integration and the Quest for Growth. Buenos Aires: Institute for the Integration of Latin America and the Caribbean, 2005. Print Meade, Ellen E. Exchange Rates, Adjustment, and the J-Curve, 1988. Print Pattillo, Catherine, Hélène Poirson and Luca Antonio Ricci. IMF Working Paper: External Debt and Growth, Issues 2002-2069. International Monetary Fund, 2002 Print The World Bank. The Road to Sustained Growth in Jamaica. Washington, DC: The International Bank for Reconstruction and Development / The World Bank, 2004. Print The World Bank. www.worldbank.org

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