Dictionary - J Curve

Definition

A graphic representation of the initial increase in a country's trade deficit after a deprecation of its currency. 

Example

A deprecation of the local currency will temporarily result in a higher import volume than export volume. However, since (relatively speaking) the local goods and services become cheaper for other countries, the export volume will gradually increase and return to the initial level over time.

Relevance

The J curve can predict the economic effects of a decline in value of a currency. It suggests that a deprecation can actually result in a trade surplus for a country. This may in turn have significant implications on the measures taken by policy makers.