Non-linear Autoregressive Distributed Lag Model Approach and the J-Curve Phenomenon: China and Her Major Trading Partners

Following Bahmani-Oskooee and Fariditavana (2016), I use the non-linear autoregressive distributed lag model approach of Shin et al. (2013) to examine the J-curve phenomenon for the Chinese economy. Most recent studies have used methods such as the linear autoregressive distributed lag model approach of Pesaran et al. (2001) which assumes a linear relationship between the exchange rate and the trade balance. I argue that lack of support for the J-curve effect could be due to assuming that effects of exchange rate changes are symmetric. Using a linear autoregressive distributed lag model approach, I am able to find support for the J-curve effect in two out of four models. When using a non-linear autoregressive distributed lag model approach, however, I am able to find support for the J-curve effect in three out of four models