On the Relationship Between Exchange Rates and External Imbalances: Should we Learn from East and South-east Asia?

Juan Cuestas and Paulo Regis

Annals of Economics and Finance, 2016, vol. 17, issue 2, 255-280

Abstract: The role the real exchange rate plays in determining current account balances has gathered momentum as East and Southeast Asian countries have seen increasingly positive current account balances. This paper analyses the evolution of current accounts in the region. A cointegrating relationship between the real effective exchange rate and the ratio of the current account balance to the GDP is tested, based on both linear and nonlinear models. The half-life of current account imbalances is relatively short, implying high capital mobility. Results point to the existence of a long-run relationship, and in most cases the causality runs from the exchange rate to the current account.

Keywords: Emerging markets; Current account; Half-life; East and Southeast Asia (search for similar items in EconPapers)
JEL-codes: C32 E22 F15 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:cuf:journl:y:2016:v:17:i:2:cuestas

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