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J-curve


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A model of the delayed effects of devaluation on the balance of trade. Devaluation allows the foreign price of exports to fall and the domestic price of imports to rise immediately. Time is needed, however, for orders to be obtained and contracts negotiated before the quantity of exports rises and the quantity of imports falls. Consequently, an initial worsening of the trade balance can be expected—the downward part of the J—before the trade balance starts to improve—the upward part of the J—following devaluation.

Subjects: Economics.


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