Bachelor of Arts
J-curve, United States, Dollar, Devaluation, Manufacturing, Manufacturers
This paper will attempt to empirically illustrate the contribution of short-run supply adjustment to the U.S. J-curve. I plan to study, on the major industry division level (2 digit SIC), 15 manufacturing sectors of the united states. Their supply movements will be calculated in terms of total short-run adjustment. These statistics will then be compared to the trade balance (J-curve) for the U.S. to see if the supply movements of U.S. manufacturers can explain the continued drop in U.S. international trade. If the theory is supported few industries will adjust quickly in the short-run, reflecting the slow adjustment of aggregate trade variables. Studies relating to the subject of supply response generally deal with movements in aggregate variables. To the best of my knowledge supply response relating' to the J-curve has never been measured on such a disaggregated level.
The final results of this paper indicate that following devaluation of the dollar the short-run supply response of U.S. industries is negligible. This finding lends itself to previous studies which have indicated that demand is highly inelastic over the same period. The poor performance of U.S. international trade and the length of the U.S. J-curve are in agreement with this finding.
The remainder of this paper is organized as follows: section II contains a selective review of the relevant literature. Section III develops the theory which is to be tested. Section IV describes the model which is used and how it is measured. Section V describes the data used in this study. Section VI presents the results. Section VII analyzes and explains the results. Section VIII describes some of the econometric difficulties encountered while measuring the model. Finally, Section IX concludes the paper with an agenda for future research.
Brown, Alexander L., "Devaluation, Short-Run Supply Response, and the J-Curve" (1987). Honors Papers. 598.