Nominal exchange rate expresses the value of one unit of foreign currency in terms of domestic currency. In the economic literature, the depreciation of the domestic currency against the foreign currency, that is, the increase in the nominal exchange rate, means that the goods of that country become cheaper for foreign buyers. This means that the country's exports will increase. Countries may have foreign trade surpluses and targets to provide foreign exchange inflows into the country. In particular, countries that implement a fixed exchange rate regime can provide by lowering the value of their domestic currency against foreign currencies in order to increase their exports. This is done through devaluation. If devaluation is implemented, it will affect exports and imports through the relative prices of goods. In the economics literature, there is the Marshall and Lerner Hypothesis, which argues that the effect of the change in the exchange rate on foreign trade can be explained by the elasticity of supply and demand for goods. According to this hypothesis, the demand elasticity of imported and exported goods should be greater than 1 in order for the devaluation to have a positive effect on foreign trade. This hypothesis is related to the J curve in the economics literature.
The J curve implies a possible relationship between the trade balance and the change in the exchange rate. In the short term, the depreciation of the currency tends to create a temporary trade deficit. But in the long run, the depreciation will lead to an improvement in the trade balance. This is due to the depreciation of the currency, which makes export goods cheaper.
According to the graph, for example after a currency depreciation, the current account deficit may worsen from X to point Y in the short term. But in the long term current account deficit improves and moves to point Z from point Y. The curve formed from X to Z is known as the J curve in the economic literature because it resembles J.
Bibliography:
https://www.ekonomistr.com/j-egrisi-nedir/
https://www.youtube.com/watch?v=Hgt_mYfPXTA
https://dergipark.org.tr/tr/download/article-file/201895
https://www.researchgate.net/publication/325496155_Marshall-Lerner_Kosulu_ve_J_Egrisi_Hipotezinin_Gecerliligi_Farkli_Gelir_Gurubu_Ulkeleri_Icin_Karsilastirmali_Bir_Analiz_Impacts_of_Changes_in_Real_Effective_Exchange_Rate_on_Turkey's_Foreign_Trade_Per/link/5de2994992851c836457ca44/download
