The Current Account and the Real Exchange Rate: A Structural VAR Analysis of Major Currencies

UCSC Department of Economics Working Paper No. 395

Posted: 8 Oct 1998

See all articles by Menzie David Chinn

Menzie David Chinn

University of Wisconsin, Madison - Robert M. La Follette School of Public Affairs and Department of Economics; National Bureau of Economic Research (NBER)

Jaewoo Lee

International Monetary Fund (IMF) - Research Department

Multiple version iconThere are 2 versions of this paper

Date Written: June 1998

Abstract

A sticky-price model is used to motivate a structural VAR analysis of the current account the and the real exchange rate for seven major industrialized countries (the U.S., Canada, the U.K., Japan, Germany, France, and Italy). The analysis is distinguished from previous work in that it adopts minimal assumptions for identification. The empirical results are consistent with the theoretical model, as well as the sticky price intertemporal model of Obstfeld and Rogoff (1995). Permanent shocks to productivity have large long-term effects on the real exchange rate but relatively small effects on the current account; money shocks have large effects on the current account and exchange rate in the short run but not on either variable in the long run.

JEL Classification: F31, F41

Suggested Citation

Chinn, Menzie David and Lee, Jaewoo, The Current Account and the Real Exchange Rate: A Structural VAR Analysis of Major Currencies (June 1998). UCSC Department of Economics Working Paper No. 395. Available at SSRN: https://ssrn.com/abstract=116771

Menzie David Chinn (Contact Author)

University of Wisconsin, Madison - Robert M. La Follette School of Public Affairs and Department of Economics ( email )

1180 Observatory Drive
Madison, WI 53706-1393
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608-262-7397 (Phone)
608-262-2033 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Jaewoo Lee

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-7331 (Phone)
202-623-6334 (Fax)

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