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- Title
Structural Change in Current Account and Real Exchange Rate Dynamics: Evidence from the G7 Countries.
- Authors
Shibamoto, Masahiko; Kitano, Shigeto
- Abstract
Previous studies decompose the current account and the real exchange rate into temporary and permanent shocks and argue that a temporary shock creates the combination of a current account surplus (deficit) and real exchange rate depreciation (appreciation). The present paper extends their framework by examining a possible structural break in current account and real exchange rate dynamics. Using G7 country data for 1980-2007, we find structural changes in two-variable dynamics for all G7 countries during the 1990s. Temporary shocks have not been the main source of fluctuation in the current account since the 1990s. Our empirical results imply that the conventional mechanism has played a limited role in explaining the dynamics of the two variables.
- Subjects
FOREIGN exchange rates; APPRECIATION (Accounting); DEPRECIATION; MATHEMATICAL variables; GROUP of Seven countries
- Publication
Pacific Economic Review, 2012, Vol 17, Issue 5, p619
- ISSN
1361-374X
- Publication type
Article
- DOI
10.1111/1468-0106.12001