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On the Relationship Between Exchange Rates and External Imbalances: East and Southeast Asia

Listed author(s):
  • Juan Carlos Cuestas

    ()

    (Department of Economics, University of Sheffield)

  • Paulo José Regis

    (Department of Economics, 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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File URL: http://www.shef.ac.uk/economics/research/serps/articles/2013_015.html
File Function: Updated version, September 2014
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Paper provided by The University of Sheffield, Department of Economics in its series Working Papers with number 2013015.

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Length: 30 pages
Date of creation: Oct 2013
Handle: RePEc:shf:wpaper:2013015
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  10. Edison, Hali J. & Pauls, B. Dianne, 1993. "A re-assessment of the relationship between real exchange rates and real interest rates: 1974-1990," Journal of Monetary Economics, Elsevier, vol. 31(2), pages 165-187, April.
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