The role of monetary shocks and real shocks on the current account, the terms of trade and the real exchange rate dynamics: a SVAR analysis

Yanchun Zhang

Applied Economics, 2009, vol. 41, issue 16, pages 2047-2063

Abstract: The article is an empirical investigation of the role of monetary shocks and real shocks on the current account, the terms of trade and the real exchange rate dynamics. Three new open economy macro-economics (NOEM) models are studied to motivate the empirical investigation. Then I apply the Blanchard-Quah decomposition to identify a SVAR model. The empirical evidence supports the NOEM model with the simplified household preference specification and with the small degree of pricing-to-market. The evidence also illustrates monetary shocks important for the real exchange rate and the terms of trade movements, but not for the current account fluctuations.

Date: 2009

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