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Stochastic trends and balance of payments crises

Author

Listed:
  • Mohamed Ben Abdallah

    (TEAM - Université Paris 1)

  • Taoufik Rajhi

    (LEO - Orléans University)

Abstract

In this paper we investigate the importance of domestic nominal and real shocks on the fluctuations of the exchange rate and the current account balance in four countries: South Korea, Indonesia, Thailand and Mexico. We also analyse the effect of the budgetary deficit and the monetary policy on their exchange rate and their current account balance. We use the recently developed multivariate cointegration analysis followed by the model of common trends, the vector error correlation modelling, the impulse response functions and the variance decompositions. The results presented in this paper suggest that Asian countries have exposed their economy to external shock that have rendered their economy vulnerable to them. Consequently, we suggest that we must search the causes of Asian crises in the external shocks that have hit the Asian economy

Suggested Citation

  • Mohamed Ben Abdallah & Taoufik Rajhi, 2000. "Stochastic trends and balance of payments crises," Cahiers de la Maison des Sciences Economiques bla00068, Université Panthéon-Sorbonne (Paris 1).
    • Handle: RePEc:mse:wpsorb:bla00068
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    Keywords

    Cointegration; common trends; fluctuations; nominal exchange rate; current account Asian crises and variances decompositions;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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