J-Curve and the Marshall-Lerner Condition-the case of Azerbaijan

Research aim - the goal of this research paper was to establish the relationship between the exchange rate of Azerbaijani manat and international trade aggregates. To achieve this, we build a trade balance model between bilateral real exchange rate and the volumes of Azerbaijani exports and imports. Theoretical foundation - this research is based on decades of theoretical and empirical research on the topic of the J-curve and the Marshall-Lerner condition. Research results - Our results conclude that devaluation of the manat will cause the national trade balance to improve in the long run. In the short run, the balance of trade temporarily worsens due to the presence of a price effect. Limitations - our results are robust and consistent, although they are limited with data aggregation; future studies should employ disaggregated models. Practical implications - this paper puts quantified results on the tables of Azerbaijani policy makers, arguing for the possibility of trade balance improvement due to currency depreciation. originality and innovation - this paper’s originality is that there is no precedent in the study of the Azerbaijani J-curve and this research is both original and unique.