Estimation of J-curves: United States and Canada

Delayed reactions to exchange rate changes in trade on current account balances are known to exist in both the United States and Canada. A model has been constructed to estimate relative price effects for trade with major partners in order to determine the quantitative magnitudes and relevant time delays for both countries' adjustments in trade accounts. There is a distinct tendency for balances to worsen when exchange depreciation first occurs and then to improve. After several quarters have passed, there is also a tendency for the balances to worsen again. The U.S. and Canadian time profiles of adjustment are found to be similar.