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

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Author Info
Greg Leonard
Alan C. Stockman

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Abstract

This paper 'goes back to basics' in empirical analysis of the J-Curve. First, we document strong violations in the distributional assumptions that underlie nearly all previous work on this issue. Second, we employ distribution-free, non-parametric statistical tests to characterize the data and summarize the key relationships between real exchange rates, the current account, and real GDP. We find some (weak) evidence of a J-Curve in the data. Interestingly, however, we document that this evidence is not consistent with the standard theoretical explanation of the J-Curve. Consequently, our empirical results pose a strong challenge for international economic theory.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8361.

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Date of creation: Jul 2001
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Handle: RePEc:nbr:nberwo:8361

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F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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  1. Marques, Luis B, 2007. "The Costs to Consumers of a Depreciated Conversion Rate to the Euro," MPRA Paper 5723, University Library of Munich, Germany. [Downloadable!]
  2. Mark J. Holmes & Theodore Panagiotidis, 2009. "Cointegration and asymmetric adjustment: Some new evidence concerning the behaviour of the US current account," Discussion Paper Series 2009_11, Department of Economics, University of Macedonia, revised May 2009. [Downloadable!]
    Other versions:
  3. Jens R. Clausen & Magda E. Kandil, 2005. "On Cyclicality in the Current and Financial Accounts: Evidence from Nine Industrial Countries," IMF Working Papers 05/56, International Monetary Fund. [Downloadable!]
    Other versions:
  4. 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. [Downloadable!]
  5. Olivier, CARDI, 2005. "Another View of the J-Curve," Discussion Papers (ECON - Département des Sciences Economiques) 2005029, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
    Other versions:
  6. Arghyrou, Michael G & Chortareas, Georgios, 2006. "Current Account Imbalances and Real Exchange Rates in the Euro Area," Cardiff Economics Working Papers E2006/23, Cardiff University, Cardiff Business School, Economics Section. [Downloadable!]
    Other versions:
  7. CARDI, Oliver & BERTINELLI, Luisito, 2004. "A formal model of krugmanÕs intuition on the J-curve," CORE Discussion Papers 2004043, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
  8. Mohsen Bahmani-Oskooee & Charikleia Economidou & Gour G. Goswami, 2006. "Bilateral J-curve between the UK vis-à-vis her major trading partners," Applied Economics, Taylor and Francis Journals, vol. 38(8), pages 879-888, May. [Downloadable!] (restricted)
  9. 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. [Downloadable!]
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