The effect of exchange rate changes on trade balances in the short and long run

Using generalized impulse response functions, this study tests for the trade J-curve for three transitional central European countries - the Czech Republic, Hungary, and Poland - in their bilateral trade with respect to Germany. Our findings suggest that for each country there are some characteristics associated with a J-curve effect: after a (real or nominal) depreciation the export-to-import ratio briefly drops to below its initial value within a few months and then rises to a long run equilibrium value higher than the initial one. Copyright (c) The European Bank for Reconstruction and Development, 2004.