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On the relationship between exchange rates and external imbalances: Should we learn from east and South-East Asia?

On the relationship between exchange rates and external imbalances: Should we learn from east and South-East Asia?
On the relationship between exchange rates and external imbalances: Should we learn from east and South-East Asia?

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.

Current account, East and Southeast Asia, Emerging markets, Half-life
1529-7373
255-280
Cuestas, Juan Carlos
e21c853f-d345-45d1-9a3c-40ef510a1e5f
Regis, Paulo José
d696452e-72ef-48bc-9409-80996e297ca7
Cuestas, Juan Carlos
e21c853f-d345-45d1-9a3c-40ef510a1e5f
Regis, Paulo José
d696452e-72ef-48bc-9409-80996e297ca7

Cuestas, Juan Carlos and Regis, Paulo José (2016) On the relationship between exchange rates and external imbalances: Should we learn from east and South-East Asia? Annals of Economics and Finance, 17 (2), 255-280.

Record type: Article

Abstract

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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More information

Published date: 1 November 2016
Keywords: Current account, East and Southeast Asia, Emerging markets, Half-life

Identifiers

Local EPrints ID: 438867
URI: http://eprints.soton.ac.uk/id/eprint/438867
ISSN: 1529-7373
PURE UUID: ec5b723a-4600-435e-a364-e04c655bbfbc
ORCID for Paulo José Regis: ORCID iD orcid.org/0000-0002-3256-464X

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Date deposited: 25 Mar 2020 17:51
Last modified: 08 Jan 2022 03:39

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Contributors

Author: Juan Carlos Cuestas

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