Current Account and Real Exchange Rate Dynamics in the G-7 Countries

Menzie Chinn and Jaewoo Lee

No 2002/130, IMF Working Papers from International Monetary Fund

Abstract: The canonical predictions of intertemporal open-economy macro models are tested by a structural VAR analysis of Group of Seven countries. The analysis is distinguished from the previous literature in that it adopts minimal assumptions for identification. Consistent with a large set of theoretical models, permanent shocks have large long-term effects on the real exchange rate but relatively small effects on the current account; temporary shocks have large effects on the current account and exchange rate in the short run, but not on either variable in the long run. The signs of some impulse responses point toward models that differentiate tradables and nontradables.

Keywords: WP; real exchange rate; current account; intertemporal models; permanent and temporary shocks; exchange rate effect; U.K. exchange rate difference; current account effect; current account innovation; exchange rate fluctuation; current account improvement; Real exchange rates; Exchange rates; Current account balance; Exchange rate adjustments; Global (search for similar items in EconPapers)
Pages: 22
Date: 2002-08-01
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Citations: View citations in EconPapers (17)

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Related works:
Journal Article: Current account and real exchange rate dynamics in the G7 countries (2006)
Working Paper: Current account and real exchange rate dynamics in the G-7 countries (2004)
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