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On the relationship between exchange rates and external imbalances: East and Southeast Asia

Juan Cuestas and Paulo Regis

No 13-08, Working Papers from Asociación Española de Economía y Finanzas Internacionales

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 of 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 poin 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: C22 E32 F15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc, nep-cba, nep-opm and nep-sea
Date: 2013-10
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