The J-curve effect: The case of Vietnam in 2001-2015

Abstract

The aim of this study is to investigate whether a devaluation would
improve the trade balance 2001-2015. The study uses quarterly data
collected from reliable sources such as World Bank (WB), and General
Statistic Office of Vietnam (GSO), and International Financial
Statistics (IFS). The first part of the study shows exchange rate
classifications based on their effects on BOP and their corresponding
computation. The second part employs Impulse Response analysis to
examine the pattern of the trade balance after a shock of exchange
rate or a devaluation. The finding of the study is that following a
devaluation, the trade balance deteriorates in the first two-quarters
and then starting improving till the sixth quarter. After the six quarter,
the trade balance again falls into deficit and followed by rises and
declines unexpectedly. With responses illustrated from the analysis,
the trade balance has a sign of the J curve in early quarters but this
sign is fading in later quarters. The study also discovers that there
is a possibility that after a shock of exchange rate, the trade balance
will follow an S curve, instead of a J curve. In the end of the study,
the author recommends some policy implications to improve trade
balance and open further insights for subsequent researchers