J-Curve
A J-curve is a trendline that shows an initial loss immediately followed by a dramatic gain. In a chart, this pattern of activity would follow the shape of a capital "J". The J-curve effect is often cited in economics to describe, for instance, the way that a country’s balance of trade initially worsens following a devaluation of its currency, then quickly recovers and finally surpasses its previous performance. J-curves are observed in other fields including medicine and political science. In each case, it depicts an initial loss followed by a significant gain to a level that exceeds the starting point.
Understanding the J-Curve
The J-curve is useful to demonstrate the effects of an event or action over a set period of time. Put bluntly, it shows that things are going to get worse before they get better.
KEY TAKEWAYS
- A J-curve depicts a trend that starts with a sharp drop and is followed by a dramatic rise.
- The trendline ends in an improvement from the starting point.
- In economics, the J-curve shows how a currency depreciation causes a severe worsening of a trade imbalance followed by a substantial improvement.
Post a Comment
Leave with comments