The effectiveness of exchange rate changes in the presence of the J-curve effect and real wage resistance

In the theoretical part of the dissertation, I find that a model in which a J-curve coexists with real wage resistance (RWR) may be dynamically unstable. This result is consistent with the inconclusiveness found in empirical literature regarding the J-curve phenomenon. In the empirical part, I estimate the responsiveness of the trade balance in twenty one countries to a host of other variables by performing several multiple regression tests for the period from 1962 to 1990. After testing the data for nonstationarity, I perform tests of cointegration, following which I repeat the multiple regression tests using first differenced instead of levels data Results do not point to a J-curve pattern of trade balance behavior. In addition, regressions (except OLS) generally indicate a lack of significance of the real exchange rate variable with respect to the trade balance. The findings support other recent studies.