Structural Change in Current Account and Real Exchange Rate Dynamics: Evidence from the G7 Countries

Kobe University Research Institute for Economics & Business Administration (RIEB) Discussion Paper No. DP2010-23

24 Pages Posted: 21 Sep 2010

See all articles by Masahiko Shibamoto

Masahiko Shibamoto

Kobe University - Research Institute for Economics & Business Administration

Shigeto Kitano

Kobe University - Research Institute for Economics & Business Administration

Date Written: September 15, 2010

Abstract

Lee and Chinn (2006) and Chinn and Lee (2009) decomposed the current account and real exchange rate into temporary and permanent shocks, and argued that a temporary shock creates the combination of current account surplus (deficit) and real exchange rate depreciation (appreciation). This paper extends their framework by examining a possible structural break in the current account and real exchange rate dynamics. Using the data of the G7 countries during the period 1980-2007, we find structural changes in two-variable dynamics for all the countries during the mid 1990s. Since the mid 1990s, the temporary shocks have not been the main source of fluctuations in the current account. Our empirical results imply that the conventional mechanism has played a limited role in explaining the dynamics of the two variables.

Keywords: Current Exchange Rate, Structural Change, Global Imbalances

JEL Classification: F31, F41

Suggested Citation

Shibamoto, Masahiko and Kitano, Shigeto, Structural Change in Current Account and Real Exchange Rate Dynamics: Evidence from the G7 Countries (September 15, 2010). Kobe University Research Institute for Economics & Business Administration (RIEB) Discussion Paper No. DP2010-23, Available at SSRN: https://ssrn.com/abstract=1680256 or http://dx.doi.org/10.2139/ssrn.1680256

Masahiko Shibamoto

Kobe University - Research Institute for Economics & Business Administration ( email )

2-1, Rokkodai cho
Nada-ku
Kobe, 657-8501
Japan

Shigeto Kitano (Contact Author)

Kobe University - Research Institute for Economics & Business Administration ( email )

2-1, Rokkodai cho
Nada-ku
Kobe, 657-8501
Japan

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
69
Abstract Views
480
Rank
636,348
PlumX Metrics