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Current Accounts and Exchange Rates: A New Look at the Evidence

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  • Leonard, Greg
  • Stockman, Alan C

Abstract

A small literature has developed exploring nonlinearities in exchange rate data. This paper studies bivariate statistical relationships between current accounts, exchange rates, and cross-country ratios of GDP. The analysis differs from previous empirical work on these issues in using nonparametric methods to allow for nonlinearities, in employing a minimum of statistical assumptions, and in focusing on a fundamental characterization of the data. The authors present new evidence on the connections between exchange rates, the current account, and GDP. While the evidence loosely supports some common beliefs about the data, it conflicts with some common theoretical models. Thus the results pose new challenges for theory. Copyright 2002 by Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 10 (2002)
Issue (Month): 3 (August)
Pages: 483-96

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Handle: RePEc:bla:reviec:v:10:y:2002:i:3:p:483-96

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  1. Moffett, Michael H., 1989. "The J-curve revisited: an empirical examination for the United States," Journal of International Money and Finance, Elsevier, vol. 8(3), pages 425-444, September.
  2. Paul R. Krugman & Richard E. Baldwin, 1987. "The Persistence of the U.S. Trade Deficit," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(1), pages 1-56.
  3. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1994. "Dynamics of the Trade Balance and the Terms of Trade: The J-Curve?," American Economic Review, American Economic Association, vol. 84(1), pages 84-103, March.
  4. Maurice Obstfeld & Alan M. Taylor, 1997. "Nonlinear Aspects of Goods-Market Arbitrage and Adjustment: Heckscher's Commodity Points Revisited," NBER Working Papers 6053, National Bureau of Economic Research, Inc.
  5. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1991. "International real business cycles," Staff Report 146, Federal Reserve Bank of Minneapolis.
  6. Rose, Andrew K. & Yellen, Janet L., 1989. "Is there a J-curve?," Journal of Monetary Economics, Elsevier, vol. 24(1), pages 53-68, July.
  7. Michael, Panos & Nobay, A Robert & Peel, David A, 1997. "Transactions Costs and Nonlinear Adjustment in Real Exchange Rates: An Empirical Investigation," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 862-79, August.
  8. Paul G. J. O'Connell & Shang-Jin Wei, 1997. ""The Bigger They Are, The Harder They Fall": How Price Differences Across U.S. Cities Are Arbitraged," NBER Working Papers 6089, National Bureau of Economic Research, Inc.
  9. Betts, Caroline & Devereux, Michael B., 1996. "The exchange rate in a model of pricing-to-market," European Economic Review, Elsevier, vol. 40(3-5), pages 1007-1021, April.
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Cited by:
  1. repec:ebl:ecbull:v:5:y:2003:i:18:p:1-13 is not listed on IDEAS
  2. Holmes Mark J. & Panagiotidis Theodore, 2009. "Cointegration and Asymmetric Adjustment: Some New Evidence Concerning the Behavior of the U.S. Current Account," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-25, June.
  3. Cavallo, Michele & Ghironi, Fabio, 2002. "Net foreign assets and the exchange rate: Redux revived," Journal of Monetary Economics, Elsevier, vol. 49(5), pages 1057-1097, July.
  4. Cardi, Olivier, 2007. "Another View Of The J-Curve," Macroeconomic Dynamics, Cambridge University Press, vol. 11(02), pages 153-174, April.
  5. Mohsen Bahmani-Oskooee & Charikleia Economidou & Gour Goswami, 2006. "Bilateral J-curve between the UK vis-a-vis her major trading partners," Applied Economics, Taylor & Francis Journals, vol. 38(8), pages 879-888.
  6. Elif Akbostanci, 2002. "Dynamics of the trade balance: The Turkish J-curve," ERC Working Papers 0205, ERC - Economic Research Center, Middle East Technical University, revised May 2002.
  7. Michael G. Arghyrou & Georgios Chortareas, 2008. "Current Account Imbalances and Real Exchange Rates in the Euro Area," Review of International Economics, Wiley Blackwell, vol. 16(4), pages 747-764, 09.
  8. Mohamed Arouri & Arif Billah Dar & Niyati Bhanja & Aviral Kumar Tiwari & FrédéricTeulon, 2014. "Interlinkage between Real Exchange rate and Current Account Behaviors: Evidence from India," Working Papers 2014-088, Department of Research, Ipag Business School.
  9. Marques, Luis B, 2007. "The Costs to Consumers of a Depreciated Conversion Rate to the Euro," MPRA Paper 5723, University Library of Munich, Germany.
  10. Jens R. Clausen & Magda E. Kandil, 2005. "On Cyclicality in the Current and Financial Accounts," IMF Working Papers 05/56, International Monetary Fund.
  11. Duarte, Margarida & Stockman, Alan C., 2005. "Rational speculation and exchange rates," Journal of Monetary Economics, Elsevier, vol. 52(1), pages 3-29, January.
  12. Ahmad, A. H. & Pentecost, E. J., 2012. "The Current Account and Real Exchange Rate Dynamics in African Countries," Department of Economics Working Papers 32981, University of Bath, Department of Economics.
  13. Theo Panagiotidis & Mark J Holmes, 2005. "Sustainability and Asymmetric Adjustment: Some New Evidence Concerning Behaviour of the US Current Account," Money Macro and Finance (MMF) Research Group Conference 2005 29, Money Macro and Finance Research Group.
  14. CARDI, Oliver & BERTINELLI, Luisito, 2004. "A formal model of krugman’s intuition on the J-curve," CORE Discussion Papers 2004043, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  15. Olugbenga Onafowora, 2003. "Exchange rate and trade balance in east asia: is there a J-curve?," Economics Bulletin, AccessEcon, vol. 5(18), pages 1-13.
  16. Chayawadee Chai-anant & Ubonrat Jantarang, 2004. "Current Account Adjustment and Policy Instrument Responsiveness," Working Papers 2004-04, Economic Research Department, Bank of Thailand.

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