REG NO: A110/14052/16
UNIT CODE: ECON 442
UNIT NAME: INTERNATIONAL ECONOMICS
DEPARTMENT: ECONOMICS
FACULTY: FASS
DATE:31/10/2020
TASK: CAT
1.carefully explain the meaning of the ‘J curve effect’ and the ‘marshall-lerner condition.’ How are these two
concepts related? Discuss empirical evidence on the existence of the ‘marshall-lerner condition’
The J-curve effect refers to a "J" shaped section of a time-series graph in which the curve falls into negative
territory and then gradually rises to a higher level than before the decline.
A J-curve is a trendline that shows an initial loss immediately followed by a sharp gain. In a chart, this pattern of
activity would have the shape of a capital "J".
Marshall lerner condition In international trade, a theory stating that if the sum of price elasticity of a country's
exports and the price elasticity of its imports is greater than one, a devaluation of that country's
currency will improve its balance trade.Devaluation does not improve the balance of trade if the sum is any lower.
Relationship of the concepts
The J Curve effect a depreciation in the exchange rate can cause a deterioration of the current account in the
short-term (because demand is inelastic). The J-Curve is related to the Marshall-Lerner condition, which states:
If (PED x + PED m > 1) then a devaluation will improve the current account.
UNIT CODE: ECON 442
UNIT NAME: INTERNATIONAL ECONOMICS
DEPARTMENT: ECONOMICS
FACULTY: FASS
DATE:31/10/2020
TASK: CAT
1.carefully explain the meaning of the ‘J curve effect’ and the ‘marshall-lerner condition.’ How are these two
concepts related? Discuss empirical evidence on the existence of the ‘marshall-lerner condition’
The J-curve effect refers to a "J" shaped section of a time-series graph in which the curve falls into negative
territory and then gradually rises to a higher level than before the decline.
A J-curve is a trendline that shows an initial loss immediately followed by a sharp gain. In a chart, this pattern of
activity would have the shape of a capital "J".
Marshall lerner condition In international trade, a theory stating that if the sum of price elasticity of a country's
exports and the price elasticity of its imports is greater than one, a devaluation of that country's
currency will improve its balance trade.Devaluation does not improve the balance of trade if the sum is any lower.
Relationship of the concepts
The J Curve effect a depreciation in the exchange rate can cause a deterioration of the current account in the
short-term (because demand is inelastic). The J-Curve is related to the Marshall-Lerner condition, which states:
If (PED x + PED m > 1) then a devaluation will improve the current account.
