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

August 1, 2002

Preview Citation

Format: Chicago

Menzie David Chinn, and Jaewoo Lee. Current Account and Real Exchange Rate Dynamics in the G-7 Countries, (USA: International Monetary Fund, 2002) accessed November 21, 2024

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.

Subject: Balance of payments, Current account, Current account balance, Exchange rate adjustments, Exchange rates, Foreign exchange, Real exchange rates

Keywords: Current account, Current account balance, Current account effect, Current account improvement, Current account innovation, Exchange rate adjustments, Exchange rate effect, Exchange rate fluctuation, Exchange rates, Global, Intertemporal models, Permanent and temporary shocks, Real exchange rate, Real exchange rates, U.K. exchange rate difference, WP

Publication Details

Pages:

22
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2002/130
Stock No:

WPIEA1302002
ISBN:

9781451855203
ISSN:

1018-5941

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