Current account and real exchange rate changes: the impact of trade openness

Davide Romelli, Cristina Terra and Enrico Vasconcelos
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Enrico Vasconcelos: Banco Central do Brasil

No WP1520, ESSEC Working Papers from ESSEC Research Center, ESSEC Business School

Abstract: This article investigates the impact of trade openness on the relationship between current account and real exchange rates, during episodes of sudden stops and of abrupt exchange rate depreciations. Using data for developed and emerging economies for the period 1970{ 2011, we find that more open economies are associated with lower exchange rate depreciations during sudden stops. We also provide evidence that, during abrupt exchange rate depreciation episodes, economies that are more open to trade experience a larger change in current ac- count and trade balance. In other words, our results indicate that improvements in current account and trade balance are accompanied by a smaller exchange rate depreciation in more open economies. These findings are robust to different measures of openness to trade and methodologies of identifying sudden stops and abrupt exchange rate depreciations.

Keywords: trade openness; sudden stops; exchange rate depreciation (search for similar items in EconPapers)
JEL-codes: F31 F32 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2015-09-29
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Current account and real exchange rate changes: The impact of trade openness (2018)
Working Paper: Current Account and Real Exchange Rate changes: the impact of trade openness (2016)
Working Paper: Current Account and Real Exchange Rate Changes: The Impact of Trade Openness (2015)
Working Paper: Current Account and Real Exchange Rate changes: the Impact of Trade Openness (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:essewp:dr-15020

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