Coexistence of Sustained External Imbalance and Real Exchange Rate Misalignment: The Underlying Fundamentals

Chen Fang () and Cheng-te Lee ()
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Chen Fang: Department of International Trade, Takming University of Science and Technology, Taiwan
Cheng-te Lee: Department of International Trade, Chinese Culture University, Taiwan

Economics Bulletin, 2014, vol. 34, issue 3, 1714-1722

Abstract: By focusing on the macroeconomic effects of temporary price shocks, this note clarifies the relationships among the terms of trade, the real exchange rate and the current account. This clarification suggests that a real depreciation might prove incapable of bringing the external imbalance back to a sustainable level.

Keywords: terms of trade; current account; real exchange rate; intratemporal substitutability. (search for similar items in EconPapers)
JEL-codes: F3 F4 (search for similar items in EconPapers)
Date: 2014-08-06
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