Document Type

Article

Disciplines

5.2 ECONOMICS AND BUSINESS

Publication Details

https://link.springer.com/article/10.1007/s11079-022-09673-7

doi:10.21427/k2ay-v054

Abstract

This paper globally analyzes the bivariate relation between large current account imbalances and the real exchange rate over diferent degrees of nominal exchange rate variability. Employing both linear and nonlinear panel estimation procedures, we typically fnd an inverse long-run link between large imbalances and the real exchange rate at lower nominal exchange rate rigidity levels. This is in contrast to the often non-existent or positive comovement that materializes under lower nominal exchange rate variation. Our results thus suggest that greater nominal exchange rate adjustment can induce a stabilizing “current account”-“real exchange rate” relation. Meanwhile, current account adjustment speeds up with more fexible nominal exchange rates. Along the cross-section, the most salient fndings are i) the striking positive relation between current account persistence and real exchange rate persistence based on country-specifc estimates and ii) the inverse correlation between persistence in either the current account or real exchange rate and nominal exchange rate volatility.

DOI

https://doi.org/10.21427/k2ay-v054

Creative Commons License

Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License
This work is licensed under a Creative Commons Attribution-NonCommercial-Share Alike 4.0 International License.

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