scholarly journals Exchange Rate Misalignment And Current Account Sustainability: The Australian Experience

2011 ◽  
Vol 2 (3) ◽  
Author(s):  
Francois Hermet ◽  
Jean-Francois Hoarau ◽  
Alain Nurbel
Keyword(s):  
Exchange Rate ◽  
Current Account ◽  
Current Account Deficit ◽  
Exchange Rate Regime ◽  
Flexible Exchange Rate ◽  
Real Effective Exchange Rate ◽  
Current Account Sustainability ◽  
Effective Exchange ◽  
Australian Experience ◽  
The Current Account

Australia’s persistent current account deficit engenders lively debates about its intertemporal solvency. This paper aims at showing whether there is really a misalignment of the $A real effective exchange rate ($A REER) and, if it is the case, at wondering about its real influence on the current account of Australia. The estimation of our empirical model puts forward a misalignment of the $A REER, but at the same time allows to emphasise the reduction in the magnitude of the misalignment since the adoption of the flexible exchange rate regime. Adding the stabilisation of the current account deficit, although recurrent, results in lending support to the Australian current account sustainability commonly held view.

scholarly journals Interlinkage Between Real Exchange Rate And Current Account Behaviors: Evidence From India

2015 ◽  
Vol 31 (4) ◽  
pp. 1199-1204
Author(s):  
Mohamed Arouri ◽  
Arif Billah Dar ◽  
Niyati Bhanja ◽  
Aviral Kumar Tiwari ◽  
Frederic Teulon
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Current Account ◽  
Current Account Deficit ◽  
Real Exchange Rates ◽  
Structural Var ◽  
Real Effective Exchange Rate ◽  
Effective Exchange ◽  
Positive Shock ◽  
The Current Account

The study analyzes the dynamic interlinkage between Indias real effective exchange rate and real current account deficit using standard VAR and structural VAR (SVAR). The empirical analysis suggests that a real currency appreciation leads to an improvement in the current account deficit, thereby highlighting the occurrence of permanent shocks such as technical innovations, productivity shocks, and changes in tastes and preferences. A positive shock to the current account deficit leads to an appreciation in the real exchange rate. Moreover, both current account and real exchange rates are found to be affected by the changes in these variables themselves rather than changes in the other variables in the system.

scholarly journals Determining the Real Exchange Rate Equilibrium for Pakistan

2021 ◽  
Vol 19 (1) ◽  
Keyword(s):  
Exchange Rate ◽  
Current Account Deficit ◽  
Exchange Rate Regime ◽  
Flexible Exchange Rate ◽  
Real Effective Exchange Rate ◽  
Reduced Form ◽  
High Volatility ◽  
Effective Exchange ◽  
Relative Productivity ◽  
Effective Exchange Rate

The achievement of macroeconomic stability and sustained economic growth are the main targets of macroeconomic agents and policymakers. High volatility in Real Effective Exchange Rate (REER) is noticed while moving towards flexible Exchange rate regime. Three assessment methodologies are followed in the paper i.e. PPP approach, PPP approach adjusted for Penn effect and reduced form equation approach to gauge REER misalignment. VAR modelling suggest that, PPP holds for Pakistan and Penn effect is witnessed in the country for FY1980-FY12018. The determinants of REER, like “openness to GDP ratio, Govt consumption to GDP ratio, Long term Investment to GDP ratio, relative productivity and terms of trade” are responsible for depreciation in REER. While, worker remittances and FDI leads towards the REER appreciation in. It is indispensable to opt for the devaluation of PKR to gain export competitiveness, which may result in shrinkage of current account deficit. To increase the productivity of tradable items and to reduce the GOVT consumption of imported items are few steps to push REER towards equilibrium level. As per the state of art model the range of misalignment in REER is from -3.9% to 4.2% in Pakistan.

The Sources of Indonesia’s Current Account Balance Fluctuations: An Empirical Test of the Vector Error Correction Model (VECM)

2014 ◽  
Vol 2 (1) ◽  
pp. 16
Author(s):  
Tri Winarno
Keyword(s):  
Exchange Rate ◽  
Current Account ◽  
Trade Balance ◽  
Real Effective Exchange Rate ◽  
Current Account Balance ◽  
Long Run ◽  
Effective Exchange ◽  
Effective Exchange Rate ◽  
Exchange Rate Depreciation ◽  
The Current Account

Identifying the sources of current account balance fluctuations is critical to formulating Indonesia’s macroeconomic policies which maintain both internal and external balance to guarantee sustainable economic development as mandated by The Central Bank of Indonesia Act. This study is an attempt to investigate the long-run relationship between the current account balance (including total trade balance and non-oil and gas trade balance), world exports, domestic income (a proxy by industrial production index), and real effective exchange rate in the case of Indonesia’s economy. Based on the traditional approach of elasticity (Marshall Lerner condition) and by applying the VECM method to monthly data for the period January of 2008 up to December 2012, the investigation to examine the existence of a long-run equilibrium relationship between the current account balance and its sources is conducted. Additionally, variance decompositions (VDCs) and impulse response functions (IRFs) are used to draw further inferences. The result of the VECM method indicates that there is a stable long-run relationship between the current account balance and real effective exchange rate, domestic income and world exports variables. The estimated results show that real effective exchange rate depreciation is positively related to the current account balance in the long run, consistent with the Marshall Lerner condition. This study also finds evidence of the J-curve on Indonesia's current account balance. This suggests that following a real effective exchange rate depreciation, the Indonesia current account balance will initially deteriorate but improve in the long-run. Thus the exchange rate policy can help improve the current account balance. Furthermore, the results provide strong evidence that world exports and domestic income play a strong role in determining the behavior of the current account balance. 

scholarly journals Angola

2019 ◽  
Vol 19 (170) ◽  
pp. 1
Author(s):  
Keyword(s):  
Exchange Rate ◽  
Current Account ◽  
Current Account Deficit ◽  
Exchange Rate Regime ◽  
Oil Prices ◽  
Flexible Exchange Rate ◽  
Policy Response ◽  
Growth Recovery ◽  
Alternative Sources ◽  
Oil Revenues

A 36-month Extended Arrangement under the Extended Fund Facility (hereafter the “arrangement”) was approved last December, with access of SDR 2,673 million (361 percent of quota). Lower international oil prices would reduce oil revenues, widen the current account deficit, and stymie growth recovery. The authorities are implementing a proper policy response to the weakened outlook, through a conservative supplementary budget for 2019, alternative sources of cheaper financing, and progress toward a more flexible exchange rate regime.

The Effects of Macroprudential Policies on Financial Stability in Developing Countries

2019 ◽  
pp. 92-114
Author(s):  
Sümeyra Gazel
Keyword(s):  
Developing Countries ◽  
Exchange Rate ◽  
Current Account ◽  
Financial Stability ◽  
Current Account Deficit ◽  
Common Factor ◽  
Policy Instruments ◽  
Credit Growth ◽  
Macroprudential Policies ◽  
The Current Account

In this chapter, the concept of financial instability is examined in terms of the policy instruments used by central banks. Although the policy instruments used in each country differ according to the country conditions, it is thought that the common factor among developing countries with a current account deficit problem is exchange rate volatility resulting from excessive credit growth and short-term capital movements. In this context, Argentina, Brazil, Chile, Colombia, Hungary, Indonesia, India, Mexico, Poland, South Africa, and Turkey are examined with regard to the effects of macroprudential policies on financial stability for the period between Q2 of 2006 and Q2 of 2017 by using the time-varying panel causality test developed by Dumitrescu and Hurlin. The results of the analysis indicate that excessive credit growth is a cause of the current account deficit. The same findings are also valid for interest rate. There is no obvious link between the exchange rate and the current account deficit.

Negotiating the Trilemma: The Indian Experience

2012 ◽  
Vol 12 (1) ◽  
pp. 1850249 ◽  
Author(s):  
Abhijit Sen Gupta ◽  
Ganesh Manjhi
Keyword(s):  
Exchange Rate ◽  
Capital Flows ◽  
Current Account Deficit ◽  
Exchange Rate Regime ◽  
Flexible Exchange Rate ◽  
Active Management ◽  
Reserve Bank ◽  
Indian Experience ◽  
Policy Objectives ◽  
Healthy Growth

Increased integration with the global capital markets in recent years has forced India to negotiate the trilemma, balancing the objectives of monetary independence, exchange rate stability, and orderly capital flows. India’s calibrated approach towards liberalization of capital account, wherein certain flows and agents were accorded priority in the liberalization process, has helped India to deal with the trilemma. In this paper, we examine India’s experience in negotiating the trilemma during the last three decades. In doing so, we deviate from the existing literature by quantifying the various policy objectives under the trilemma. This allows us to analyze the extent to which pursuit of an objective has entailed giving up two other objectives. Using empirical methods, we find that India has been constrained by the trilemma during the last three decades. However, instead of adopting corner solutions, India has juggled the various policy objectives under the trilemma as per the demands of the macroeconomic situation. The overall policy architecture encompassed active management of capital flows, especially volatile flows and debt flows, a moderately flexible exchange rate regime with the Reserve Bank of India (RBI) intervening at times to prevent excessive volatility, sterilization of these interventions through multiple instruments, and building up of a stockpile of reserves. This intermediate approach has suited India well as it has been able to maintain a healthy growth rate, targeted monetary and credit growth rates, a moderate inflation rate through most of the period, and a sustainable current account deficit.

scholarly journals Current Account Balance and Export Performances: Evidence Based on New EU Countries

2017 ◽  
Vol 20 (2) ◽  
pp. 33-48
Author(s):  
Željko Bogdan ◽  
Boris Cota ◽  
Nataša Erjavec
Keyword(s):  
Exchange Rate ◽  
Current Account ◽  
Flexible Exchange Rate ◽  
Research Topic ◽  
Future Research ◽  
Current Account Balance ◽  
Evidence Based ◽  
Crisis Period ◽  
Eu Countries ◽  
The Current Account

Abstract In this paper, we investigate whether the differences in the current account balance and export performances for a new EU countries are a result of exchange rate policies. The analysis shows that countries with a flexible exchange rate have better export performances and the current account balance in the pre-crisis period. The obtained results show that movements in the current account balance are mainly driven by domestic variables. In the countries with a flexible exchange rate, real and nominal depreciation affects export positively although the magnitude of these effects is tiny and limited to the crisis period. These results point to a higher significance of non-price competitiveness on export which should be a future research topic.

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