On The J-Curve Theory: The Literature and Further Proposed Improvements
Dhakir Abbas Ali Mail
Universiti Sains Islam Malaysia (USIM) Malaysia Bio Statement Faculty of Economics and Muamalat, Malaysia
Fuadah Johari Mail
Universiti Sains Islam Malaysia (USIM) Malaysia Competing interests CI POLICY; Faculty of Economics and Muamalat, Malaysia
Mohammad Haji Alias Mail
Universiti Sains Islam Malaysia (USIM) competing interests CI POLICY; Bio Statement Faculty of Economics and Muamalat, Malaysia
Keywords: Exchange rate, Trade balance, Devaluation, J-Curve theory, Monetary policy and trade.
Abstract
As one of the most debated topics in international trade, the J-Curve theory has undergone several stages of improvement. This paper tracks those stages consecutively by evaluating the state of the literature. Previous literature and studies on the exchange rate movements on the J-Curve theory to achieved understanding of the effects of exchange rate movements on trade balance substantially which undergone several stages of improvement was gathered within period of 1973 – 2013. The study highlights the need for comprehensive studies assessing the overall effect of exchange rate depreciation on trade balance for one country and all of its major trade partners discretely on disaggregated level, i.e. the sector or commodity-level of trade. Although time-consuming and vast, this could be the only way for a country to draw a full picture for the impacts of its monetary policy on trade balance.