The S-Curve at the Industry Level: Evidence from US–Australia Trade

Authors


  • Valuable comments of two anonymous referees are greatly appreciated. However, we alone are responsible for any error.

Mohsen Bahmani-Oskooee, The Department of Economics, The Center for Research on International Economics, University of Wisconsin-Milwaukee, Milwaukee, WI 53201, USA. Email: bahmani@uwm.edu

Abstract

Short-run response of the trade balance to currency depreciation is summarised by the J-Curve or S-Curve. While the J-Curve relies upon regression analysis applied to a trade balance model, the S-Curve relies upon cross-correlation function between the exchange rate and past as well as the future values of the trade balance. All past studies that have analysed response of Australian trade balance to changes in the real value of the Australian dollar have estimated the J-Curve with not much support for it. In this paper, we rely upon the S-Curve phenomenon constructed for 146 industries that trade between the United States and Australia. The S-Curve hypothesis receives support in 89 of the 146 industries providing a breakthrough in this part of the literature.

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