Current Account and Real Exchange Rate Dynamics in the G-7 Countries

Author/Editor:

Menzie David Chinn ; Jaewoo Lee

Publication Date:

August 1, 2002

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

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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