It is possible that the J-curve path for BOT adjustments may be be elongated or even inapplicable if exports are NOT predominately priced in the domestic currency and/or imports are NOT predominately priced in the foreign currency.

Question

Quizplus · Accepted Answer

The J-curve effect is based on the assumption that a depreciation of a country's currency leads to an initial deterioration of the trade balance, followed by an improvement over time. However, this effect may be weakened or even not observable if exports and imports are not predominantly priced in the domestic and foreign currencies, respectively. If most trade is conducted in a third currency, the exchange rate changes may not have a direct impact on the competitiveness of the traded goods and services, and the adjustment of the trade balance may take longer or follow a different pattern.

It Is Possible That the J-Curve Path for BOT Adjustments