Current-account adjustments and exchange-rate misalignments
Blaise Gnimassoun () and
Valérie Mignon ()
No 2013-31, EconomiX Working Papers from University of Paris Nanterre, EconomiX
This paper aims at studying current-account imbalances by paying a particular attention to exchange-rate misalignments. We rely on a nonlinear model linking the persistence of current-account imbalances to the deviation of the exchange rate to its equilibrium value. Estimating a panel smooth transition regression model on a sample of 22 industrialized countries, we show that persistence of current-account imbalances strongly depends on currency misalignments. More specifically, while there is no persistence in cases of currency undervaluation or weak overvaluation, persistence tends to augment for overvaluations higher than 11%. In addition, whereas disequilibria are persistent even for very low overvaluations in the euro area, persistence is observed only for overvaluations higher than 14% for non-eurozone members.
Keywords: current-account imbalances; current-account persistence; exchange-rate misalignments; panel smooth transition regression models (search for similar items in EconPapers)
JEL-codes: F32 F31 C33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mon and nep-opm
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Working Paper: Current-Account Adjustments and Exchange-Rate Misalignments (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:drm:wpaper:2013-31
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