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On the Relationship Between Exchange Rates and External Imbalances: Should we Learn from East and South-east Asia?

Listed author(s):
  • Juan Carlos Cuestas

    ()

    (Department of Economics and Research, Eesti Pank
    Department of Economics, University of Sheffield)

  • Paulo Jose Regis

    ()

    (International Business School Suzhou, Xi'an-Jiaotong Liverpool University)

The role the real exchange rate plays in determining current account balances has gathered momentum as East and Southeast Asian countries have seen increasingly positive current account balances. This paper analyses the evolution of current accounts in the region. A cointegrating relationship between the real effective exchange rate and the ratio of the current account balance to the GDP is tested, based on both linear and nonlinear models. The half-life of current account imbalances is relatively short, implying high capital mobility. Results point to the existence of a long-run relationship, and in most cases the causality runs from the exchange rate to the current account.

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Article provided by Society for AEF in its journal Annals of Economics and Finance.

Volume (Year): 17 (2016)
Issue (Month): 2 (November)
Pages: 255-280

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Handle: RePEc:cuf:journl:y:2016:v:17:i:2:cuestas
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