IDEAS home Printed from https://ideas.repec.org/a/ebl/ecbull/eb-25-00231.html

The responsiveness of the income balance to the exchange rate

Author

Listed:
  • Alberto Behar

    (International Monetary Fund)

  • Ramin Hassan

    (Cornerestone Research)

Abstract

We estimate income balance semi-elasticities with respect to the exchange rate for a wide sample of countries and for different types of income. Semi-elasticities are small for most countries. Therefore, the income balance is generally not a significant channel through which the exchange rate stabilizes the current account and most exchange rate misalignment estimates can focus on trade. However, our method allows for country variation and indicates a significant minority of exceptions.

Suggested Citation

  • Alberto Behar & Ramin Hassan, 2025. "The responsiveness of the income balance to the exchange rate," Economics Bulletin, AccessEcon, vol. 45(1), pages 617-622.
    • Handle: RePEc:ebl:ecbull:eb-25-00231
    as

    Download full text from publisher

    File URL: http://www.accessecon.com/Pubs/EB/2025/Volume45/EB-25-V45-I1-P55.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Dean Yang, 2008. "International Migration, Remittances and Household Investment: Evidence from Philippine Migrants’ Exchange Rate Shocks," Economic Journal, Royal Economic Society, vol. 118(528), pages 591-630, April.
    2. Sarno,Lucio & Taylor,Mark P., 2003. "The Economics of Exchange Rates," Cambridge Books, Cambridge University Press, number 9780521485845.
    3. Alberola, Enrique & Estrada, Ángel & Viani, Francesca, 2020. "Global imbalances from a stock perspective: The asymmetry between creditors and debtors," Journal of International Money and Finance, Elsevier, vol. 107(C).
    4. Mr. Cian Allen & Camila Casas & Mr. Giovanni Ganelli & Luciana Juvenal & Mr. Daniel Leigh & Mr. Pau Rabanal & Cyril Rebillard & Jair Rodriguez & João Tovar Jalles, 2023. "2022 Update of the External Balance Assessment Methodology," IMF Working Papers 2023/047, International Monetary Fund.
    5. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "Exchange Rate Dynamics Redux," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 624-660, June.
    6. Philip R Lane & Gian Maria Milesi-Ferretti, 2011. "The Cross-Country Incidence of the Global Crisis," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 59(1), pages 77-110, April.
    7. Catão, Luis A.V. & Milesi-Ferretti, Gian Maria, 2014. "External liabilities and crises," Journal of International Economics, Elsevier, vol. 94(1), pages 18-32.
    8. Mr. Alberto Behar & Ramin Hassan, 2022. "The Current Account Income Balance: External Adjustment Channel or Vulnerability Amplifier?," IMF Working Papers 2022/106, International Monetary Fund.
    9. Mr. Steven T Phillips & Mr. Luis Catão & Mr. Luca A Ricci & Mr. Rudolfs Bems & Ms. Mitali Das & Mr. Julian Di Giovanni & Ms. Filiz D Unsal & Marola Castillo & Jungjin Lee & Jair Rodriguez & Mr. Mauric, 2013. "The External Balance Assessment (EBA) Methodology," IMF Working Papers 2013/272, International Monetary Fund.
    10. Abdul Abiad & Prachi Mishra & Petia Topalova, 2014. "How Does Trade Evolve in the Aftermath of Financial Crises?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 62(2), pages 213-247, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mr. Alberto Behar & Ramin Hassan, 2022. "The Current Account Income Balance: External Adjustment Channel or Vulnerability Amplifier?," IMF Working Papers 2022/106, International Monetary Fund.
    2. Hansen, Erwin & Wagner, Rodrigo, 2022. "The reinvestment by multinationals as a capital flow: Crises, imbalances, and the cash-based current account," Journal of International Money and Finance, Elsevier, vol. 124(C).
    3. Cheng, Fuzhi & Orden, David, 2005. "Exchange rate misalignment and its effects on agricultural producer support estimates: empirical evidence from India and China," MTID discussion papers 81, International Food Policy Research Institute (IFPRI).
    4. U. Michael Bergman & Shakill Hassan, 2008. "Currency Crises and Monetary Policy in an Economy with Credit Constraints: The No Interest Parity Case," EPRU Working Paper Series 08-01, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    5. Zorell, Nico, 2017. "Large net foreign liabilities of euro area countries," Occasional Paper Series 198, European Central Bank.
    6. Andrea Salazar-Díaz & Aarón Levi Garavito-Acosta & Sergio Restrepo Ángel & Leidy Viviana Arcila-Agudelo, 2023. "Real Equilibrium Exchange Rate in Colombia: Thousands of VEC Models Approach," Lecturas de Economía, Universidad de Antioquia, Departamento de Economía, issue 99, pages 33-78, July-Dece.
    7. Joscha Beckmann & Ansgar Belke & Michael Kühl, 2009. "How Stable Are Monetary Models of the Dollar-Euro Exchange Rate?: A Time-Varying Coefficient Approach," Discussion Papers of DIW Berlin 944, DIW Berlin, German Institute for Economic Research.
    8. Anastasios Evgenidis & Costas Siriopoulos, 2015. "What are the International Channels Through Which a US Policy Shock is Transmitted to The World Economies? Evidence from a Time Varying FAVAR," Working Papers 190, Bank of Greece.
    9. Taylor, Mark P & Peel, David A & Sarno, Lucio, 2001. "Nonlinear Mean-Reversion in Real Exchange Rates: Toward a Solution to the Purchasing Power Parity Puzzles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(4), pages 1015-1042, November.
    10. Joscha Beckmann & Ansgar Belke & Michael Kühl, 2011. "The dollar-euro exchange rate and macroeconomic fundamentals: a time-varying coefficient approach," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 147(1), pages 11-40, April.
    11. Funashima, Yoshito, 2020. "Money stock versus monetary base in time–frequency exchange rate determination," Journal of International Money and Finance, Elsevier, vol. 104(C).
    12. Karamé, Frédéric & Patureau, Lise & Sopraseuth, Thepthida, 2008. "Limited participation and exchange rate dynamics: Does theory meet the data?," Journal of Economic Dynamics and Control, Elsevier, vol. 32(4), pages 1041-1087, April.
    13. Jesper Rangvid, 1997. "Deviations from long-run equilibria and probabilities of devaluations: An empirical analysis of Danish realignments," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 133(3), pages 497-522, September.
    14. Menkhoff, Lukas & Rebitzky, Rafael R. & Schröder, Michael, 2009. "Heterogeneity in exchange rate expectations: Evidence on the chartist-fundamentalist approach," Journal of Economic Behavior & Organization, Elsevier, vol. 70(1-2), pages 241-252, May.
    15. Menkhoff, Lukas & Rebitzky, Rafael R., 2008. "Investor sentiment in the US-dollar: Longer-term, non-linear orientation on PPP," Journal of Empirical Finance, Elsevier, vol. 15(3), pages 455-467, June.
    16. Rod Tyers & Ying Zhang, 2014. "Real exchange rate determination and the China puzzle," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 28(2), pages 1-32, November.
    17. Andrieş, Alin Marius & Chiper, Alexandra Maria & Ongena, Steven & Sprincean, Nicu, 2024. "External wealth of nations and systemic risk," Journal of Financial Stability, Elsevier, vol. 70(C).
    18. Sondermann, David & Zorell, Nico, 2019. "A macroeconomic vulnerability model for the euro area," Working Paper Series 2306, European Central Bank.
    19. Abdalrahman AbuDalu & Elsadig Musa Ahmed, 2013. "The long and short run forcing variables of purchasing power parity of ASEAN-5," E3 Journal of Business Management and Economics., E3 Journals, vol. 4(3), pages 066-081.
    20. Cheung, Yin-Wong & Chinn, Menzie D. & Pascual, Antonio Garcia, 2005. "Empirical exchange rate models of the nineties: Are any fit to survive?," Journal of International Money and Finance, Elsevier, vol. 24(7), pages 1150-1175, November.

    More about this item

    Keywords

    ;
    ;
    ;

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F3 - International Economics - - International Finance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-25-00231. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: John P. Conley (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.