The effects of the exchange rate changes on the current account balance in the Turkish economy

Since the currency crisis in 1998, Korea has experienced continuous current account surpluses. Recently, the current account surplus increased more rapidly—amounting to 7.7 percent of GDP in 2015. In this paper, we investigate the underlying reasons for the widening of Korea's current account surpluses. We find that the upward trend in Korea's current account surpluses is largely explained by its demographical changes. Other economic variables are only helpful when explaining short run fluctuations in current account balances. Moreover, we show that Korea's current account surplus is expected to disappear by 2042 as it becomes one of the most aged economies in the world. Demographic changes are so powerful that they explain, quite successfully, the current account balance trends of other economies with highly aged populations such as Japan, Germany, Italy, Finland, and Greece. When we add the real exchange rate as an additional explanatory variable, it is statistically significant with the right sign, but the magnitude explained by it is quite limited. For example, to reduce the current account surplus by 1 percentage point, a 12 percent depreciation is needed. If Korea's current exchange rate is undervalued 4 to 12 percent less than the level consistent with fundamentals, it is impossible to reduce Korea's current account surplus to a reasonable level by adjusting the exchange rate alone. Another way to reduce current account surplus is to expand fiscal policies. We find, however, that the impact of fiscal adjustments in reducing current account surplus is even more limited. According to our estimates, reducing the current account surplus by 1 percentage point requires an increase in budget deficits (as a ratio to GDP) of 5 to 6 percentage points. If we allow endogenous movements of exchange rate and fiscal policy, the impact of exchange rate adjustment increases by 1.6 times but that of fiscal policy decreases that it is no longer statistically significant.

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Financial Liberalization and Current Account Developments in New EU Member States

Zagreb International Review of Economics and Business ◽

10.2478/zireb-2020-0009 ◽

2020 ◽

Vol 23 (1) ◽

pp. 141-154

Author(s):

Zdenka Obuljen Zoričić ◽

Boris Cota ◽

Nataša Erjavec

Keyword(s):

Exchange Rate ◽

Current Account ◽

Positive Sign ◽

Current Account Balance ◽

Financial Openness ◽

Member States ◽

Eu Member States ◽

New Eu Member States ◽

The Eu ◽

The Current Account

AbstractDue to negotiations on accession to the EU, the new EU member states from Central and Eastern Europe went through the financial opening. In the pre-crisis period followed by high liquidity in global markets, most of the EU new member states experienced rapid credit growth, which conditioned the appreciation of the exchange rate. External imbalances and vulnerabilities built up. Countries experienced deterioration in their current accounts. This paper investigates the link between financial openness, real effective exchange rate, financial crisis and current account balance within the Panel Auto-Regressive Distributed Lag (ARDL) framework for 11 new European Union members during the period from 1999 to 2016. The results obtained by the use of pooled mean group estimator (PMG) show that in the long run, financial openness has a significant negative impact on the current account balance. In the short run, crisis significantly influences the current account balance having a positive sign.

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The Relation Between the Current Account and the Exchange Rate: a Survey of the Recent Literature

Exchange Rates in Multicountry Econometric Models ◽

10.1007/978-1-349-17286-3_3 ◽

1983 ◽

pp. 58-102 ◽

Cited By ~ 1

Author(s):

Richard Blackhurst ◽

Marie-Christine Adam

Keyword(s):

Exchange Rate ◽

Current Account ◽

Recent Literature ◽

The Exchange Rate ◽

The Current Account

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Policy shocks, current account and the macroeconomy in a developing country

Journal of Economic Studies ◽

10.1108/jes-08-2017-0220 ◽

2019 ◽

Vol 46 (3) ◽

pp. 710-726

Author(s):

Moumita Basu ◽

Ranjanendra Narayan Nag

Keyword(s):

Exchange Rate ◽

Developing Country ◽

Foreign Exchange ◽

Current Account ◽

Current Account Balance ◽

Foreign Exchange Reserves ◽

Effective Demand ◽

Content Type ◽

Traded Goods ◽

The Current Account

Purpose This is a theoretical paper in the field of international macroeconomics. The purpose of this paper is to focus on a dynamic interaction between current account imbalance and unemployment in response to some policy-induced shocks for a small open economy under a flexible exchange rate. Design/methodology/approach The paper uses a two-sector framework: one sector is traded and another is the non-traded sector that is subject to an effective demand constraint. The current account imbalance arises due to the discrepancy between production of traded goods, household consumption of traded goods and government purchases of importables. The authors keep the asset structure simple by considering only domestic currency and foreign bonds that are imperfect substitutes. The paper considers a standard methodology of dynamic adjustment process involving change in foreign exchange reserves and exchange rate under perfect foresight. The saddle path properties of the equilibrium are also examined. Findings The results of comparative static exercises depend on a set of structural features of a developing country, which include asset substitutability, wage price rigidity and sectoral asymmetries. The paper shows that expansionary monetary policy, balanced budget fiscal expansion and financial liberalization have an ambiguous effect on the current account balance, foreign exchange reserves, non-traded sector and the level of employment. Originality/value The existence of Keynesian unemployment with fixed prices is the key ingredient of this paper. The paper introduces the problem of effective demand to analyze the dynamics of current account balance and exchange rate, which, in turn, determine the sectoral composition of output and level of employment.

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The current account deficit has widened and the exchange rate has depreciated

OECD Economic Surveys: Turkey - OECD Economic Surveys: Turkey 2018 ◽

10.1787/eco_surveys-tur-2018-graph15-en ◽

2018 ◽

Keyword(s):

Exchange Rate ◽

Current Account ◽

Current Account Deficit ◽

The Exchange Rate ◽

The Current Account

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

Zagreb International Review of Economics and Business ◽

10.1515/zireb-2017-0016 ◽

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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