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Structural Change in Current Account and Real Exchange Rate Dynamics: Evidence from the G7 Countries

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Author Info

  • Masahiko Shibamoto

    (Research Institute for Economics and Business Administration, Kobe University)

  • Shigeto Kitano

    (Research Institute for Economics and Business Administration, Kobe University)

Abstract

Lee and Chinn (2006) and Chinn and Lee (2009) decomposed current account and real exchange rate into temporary and permanent shocks and argued that a temporary shock creates the combination of a current account surplus (deficit) and real exchange rate depreciation (appreciation). This paper extends their framework by examining a possible structural break in current account and real exchange rate dynamics. Using G7 country data for 1980--2007, we find structural changes in two-variable dynamics for all G7 countries during the 1990s. Temporary shocks have not been the main source of fluctuation in the current account since the 1990s. Our empirical results imply that the conventional mechanism has played a limited role in explaining the dynamics of the two variables.

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File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2010-23.pdf
File Function: Revised version, 2012
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Bibliographic Info

Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number DP2010-23.

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Length: 22 pages
Date of creation: Sep 2010
Date of revision: May 2012
Handle: RePEc:kob:dpaper:dp2010-23

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Keywords: Current account; Real exchange rate; Structural change; Global imbalances;

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