The J- Curve Effect: An Examination in Some Emerging Market Economies

This paper investigates the response of the exchange rate and the trade balance to monetary. Policy innovations for some emerging market economies: Turkey, Philippine and Korea (IMF-2014) during the period 1998M1 until 2015M1. These selected countries have followed inflation targeting as a policy. In recent paper like, Mishkin (2008), argue that inflation targeting has been a highly successful monetary policy strategy for many emerging market countries and has led to greater improvement performance for advanced- country inflation targets. The empirical findings indicate that Contractionary monetary policy shocks lead to transitory appreciation of the real and the nominal exchange rate. Exchange rate appreciations lead to a short-lived improvement in the trade balance which is then followed by deterioration, giving support to the J-curve hypothesis.

Keywords:

Monetary Shock , Trade Balance , Emerging market countries , J-Curve , Impulse Response Functions