China has been accused of manipulating its currency to gain international competitiveness and enjoy a trade surplus. The S-Curve is a hypothesis that could be used to test the effectiveness of currency devaluation or depreciation. It claims that while future values of the trade balance and...

Purpose – Impact of currency depreciation or devaluation on the trade balance is not instantaneous. Indeed, because of adjustment lags favorable effects of depreciation is only realized in the future. This short-run dynamics of the trade balance is summarized by the S-Curve phenomenon. The...

Because consumer prices and trade quantities tend to exhibit stronger rigidities than do nominal exchange rates, trade balances usually respond to currency appreciations and depreciations only after a time lag. This dynamic adjustment – depicted as correlations between deviations in a...