Saturday, December 29, 2007

Where is the J-Curve?

Paul Krugman notes that Exports have off-set declining housing investment:

http://krugman.blogs.nytimes.com/2007/12/29/why-we-havent-had-a-recession-so-far/

Jim Hamilton actually made this point some time ago:

http://www.econbrowser.com/archives/2007/11/some_observatio.html

All this is a natural result of the depreciation of the dollar. My question, though, is whether to be surprised by the fast improvement in net exports. I thought that when the currency depreciated as rapidly as the dollar has, the terms of trade effect in the short run is more important than how consumers adjust to changes in relative prices. That is, because foreign goods are more expensive, and because it takes awhile to substitute out of foreign goods, the net export position should actulaly worsen for awhile.

I am not complaining, but am rather looking for an explanation...

1 comment:

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