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Economics explained


Exchange rates

The J curve effect

The J curve effect

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The J-curve effect

In some cases, a fall in the exchange rate will actually worsen the current account position before it starts to improve it.

Short term

In the short term, demand for imports and exports may be relatively inelastic. It takes time to recognise that prices have changed and then to search for alternative products.

Long term

In the longer term, demand becomes more elastic and current account position may move from deficit into a surplus.

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