Hi, need to submit a 750 words essay on the topic J curve.
When the short duration is considered, the J-curve theory comes into play (Schaefer, 1995).
In the short-term, the export and import demand becomes rigid. Thus, the current account worsens before it improves. Nevertheless, after some time, the demand becomes less and less rigid. Hence, the price can be manipulated. The effect of this is an enhancement in the current account
The current account is the variation in the net foreign position of a country. The current account can also be termed as the summation of the returns of all foreign financial assets of a country and trade balance (Pitchford, 2002). A country’s foreign assets comprises of the capital gains, the interest payments, and the dividends. By using its money, a country is able to buy from foreign countries whenever it deems appropriate. Addition of the liabilities and the foreign assets defines the financial position of a country. Is it in debt or is it in surplus. A current account keeps record of receipts received from and the payments that have been made to the foreign countries it buys from (Pitchford, 2002).
A capital account is a major constituent of the balance of payments of a country. It avails the net capital income and expenditure of a country. The capital account records the financial transactions of a country by way of titles to assets. It lists the foreign transactions to those of the market (Pitchford, 2002). A capital account is made up of purchase and disposal of non-produced, assets that are non-financial, and capital transfers (OECD, 2001).
The financial account is the ultimate account in the full order of accounts that lists the financial transactions between the units of the institutions within a country (IMF, 1996). The financial account list is composed of the transactions that include liabilities and financial assets occurring between foreigners and the country’s institutional units. Its primary constituents include