External debts, current account balance and exchange rates in emerging countries

This article aims to study the relationship between exchange rates, current account balance, and external debts in a sample of 13 emerging countries. We use quarterly data over the period 2000Q1–2016Q4. Based on VECM approach and ARDL model, the main common finding for the selected countries is that for most countries the fluctuation of exchange rates is driven by the accumulation of external debts and/or large current account imbalance, especially in the long-run. While in some countries, only unidirectional causality is pointed out, in other countries, we find bidirectional causality between variables, implying that external debts and current account balance are also influenced by the trend of exchange rates.