Current Account and Real Exchange Rate Dynamics in the G-7 Countries
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Summary:
The canonical predictions of intertemporal open-economy macro models are tested by a structural VAR analysis of Group of Seven countries. The analysis is distinguished from the previous literature in that it adopts minimal assumptions for identification. Consistent with a large set of theoretical models, permanent shocks have large long-term effects on the real exchange rate but relatively small effects on the current account; temporary shocks have large effects on the current account and exchange rate in the short run, but not on either variable in the long run. The signs of some impulse responses point toward models that differentiate tradables and nontradables.
Series:
Working Paper No. 2002/130
Subject:
Balance of payments Current account Current account balance Exchange rate adjustments Exchange rates Foreign exchange Real exchange rates
English
Publication Date:
August 1, 2002
ISBN/ISSN:
9781451855203/1018-5941
Stock No:
WPIEA1302002
Pages:
22
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