Is there a J-curve in the bilateral trade between Sweden and Germany? -A Product Level Study-

Abstract: The J-curve illustrates an initially negative effect of an exchange rate depreciation on the trade balance with improvement following in later periods. This paper investigates whether there is a J-curve in the bilateral trade between Sweden and Germany on a 3-digit SITC product group level. The ARDL bounds testing approach is employed to circumvent issues such as the bad small sample properties of more traditional cointegration tests. In the 149 product groups studied, no support could be found for a J-curve in Sweden’s trade with Germany. For some 11 % of the groups the short-run effects of an exchange rate depreciation persist into the long run.