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Shock Persistence and Current Account Dynamics

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  • Kang Shi

    ()
    (Chinese University of Hong Kong)

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Abstract

One-sector inter-temporal models of the current account predict that a transitory shock to the terms of trade will lead to improvement in trade balance, while a persistent (or permanent) one could result in trade balance deterioration. This paper reexamines this issue in a two-sector small open economy model with non-traded goods and show that the result may not hold, depending on the exchange rate regime.

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File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I3-P205.pdf
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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 31 (2011)
Issue (Month): 3 ()
Pages: 2260-2271

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Handle: RePEc:ebl:ecbull:eb-11-00131

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Related research

Keywords: Two-sector model; Current account; Shock persistence; Terms of trade; Exchange rate regimes.;

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  1. Shi, Kang, 2011. "Sectoral labor adjustment and monetary policy in a small open economy," Journal of Macroeconomics, Elsevier, Elsevier, vol. 33(4), pages 634-643.
  2. Philip R. Lane & Michael B. Devereux,Juanyi Xu, 2005. "Exchange Rates and Monetary Policy in Emerging Market Economies," The Institute for International Integration Studies Discussion Paper Series, IIIS iiisdp036, IIIS.
  3. Driskill, Robert, 2001. "Nontraded Goods and the Current Account," Review of International Economics, Wiley Blackwell, Wiley Blackwell, vol. 9(1), pages 16-23, February.
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