Effective exchange rates, current accounts and global imbalances

Joscha Beckmann and Robert Czudaj

VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy from Verein für Socialpolitik / German Economic Association

Abstract: This study analyzes the dynamics between real e ective exchange rates and current account patterns from a novel perspective. We start by dissecting long-run and time-varying short-run dynamics between both variables. Following this, we extend our framework by including interest rates into our analysis. Finally, we examine common exchange rate and current account dynamics based on common factors derived from a principal components analysis. Our results show that a real appreciation is positively related to a worsening of the current account in most cases. The adjustment pattern is time-varying but suggests that the causality mainly runs from e ective exchange rates to current accounts and occurs through valuation e ects. However, an extension of our framework based on monthly data shows that trade balance adjustment is observed less frequently. From a global point of view, cross-country trends which drive exchange rates and current accounts also share similar dynamics over the long-run.

JEL-codes: F31 F32 G15 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-acc and nep-opm
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https://www.econstor.eu/bitstream/10419/100364/1/VfS_2014_pid_890.pdf (application/pdf)

Related works:
Journal Article: Effective Exchange Rates, Current Accounts and Global Imbalances (2017)
Working Paper: Effective exchange rates, current accounts and global imbalances (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc14:100364

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