Structural Change in Current Account and Real Exchange Rate Dynamics: Evidence from the G7 Countries

Masahiko Shibamoto and Shigeto Kitano

No DP2010-23, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: Lee and Chinn (2006) and Chinn and Lee (2009) decomposed current account and real exchange rate into temporary and permanent shocks and argued that a temporary shock creates the combination of a current account surplus (deficit) and real exchange rate depreciation (appreciation). This paper extends their framework by examining a possible structural break in current account and real exchange rate dynamics. Using G7 country data for 1980--2007, we find structural changes in two-variable dynamics for all G7 countries during the 1990s. Temporary shocks have not been the main source of fluctuation in the current account since the 1990s. Our empirical results imply that the conventional mechanism has played a limited role in explaining the dynamics of the two variables.

Keywords: Current account; Real exchange rate; Structural change; Global imbalances (search for similar items in EconPapers)
JEL-codes: F31 F41 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2010-09, Revised 2012-05
New Economics Papers: this item is included in nep-cba, nep-mon and nep-opm
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Citations: View citations in EconPapers (8)

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https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2010-23.pdf Revised version, 2012 (application/pdf)

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Journal Article: Structural Change in Current Account and Real Exchange Rate Dynamics: Evidence from the G 7 Countries (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:kob:dpaper:dp2010-23

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