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On the relationship between exchange rates and external imbalances: East and Southeast Asia

  • Juan Carlos Cuestas


    (University of Sheffield)

  • Paulo José Regis

    (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 of 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 poin 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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Paper provided by Asociación Española de Economía y Finanzas Internacionales in its series Working Papers with number 13-08.

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Length: 30 pages
Date of creation: Oct 2013
Date of revision:
Handle: RePEc:aee:wpaper:1308
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