IDEAS home Printed from https://ideas.repec.org/a/ebl/ecbull/eb-11-00131.html
   My bibliography  Save this article

Shock Persistence and Current Account Dynamics

Author

Listed:
  • Kang Shi

    (Chinese University of Hong Kong)

Abstract

One-sector inter-temporal models of the current account predict that a transitory shock to the terms of trade will lead to improvement in trade balance, while a persistent (or permanent) one could result in trade balance deterioration. This paper reexamines this issue in a two-sector small open economy model with non-traded goods and show that the result may not hold, depending on the exchange rate regime.

Suggested Citation

  • Kang Shi, 2011. "Shock Persistence and Current Account Dynamics," Economics Bulletin, AccessEcon, vol. 31(3), pages 2260-2271.
    • Handle: RePEc:ebl:ecbull:eb-11-00131
    as

    Download full text from publisher

    File URL: http://www.accessecon.com/Pubs/EB/2011/Volume31/EB-11-V31-I3-P205.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Michael B. Devereux & Philip R. Lane & Juanyi Xu, 2006. "Exchange Rates and Monetary Policy in Emerging Market Economies," Economic Journal, Royal Economic Society, vol. 116(511), pages 478-506, April.
    2. Shi, Kang, 2011. "Sectoral labor adjustment and monetary policy in a small open economy," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 634-643.
    3. Robert Driskill, 2001. "Nontraded Goods and the Current Account," Review of International Economics, Wiley Blackwell, vol. 9(1), pages 16-23, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cardi, Olivier & Restout, Romain, 2015. "Imperfect mobility of labor across sectors: a reappraisal of the Balassa–Samuelson effect," Journal of International Economics, Elsevier, vol. 97(2), pages 249-265.
    2. Min Lu, 2012. "Current account dynamics and optimal monetary policy in a two-country economy," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 5(3), pages 299-324.
    3. Kitano Shigeto & Takaku Kenya, 2018. "Capital controls as a credit policy tool in a small open economy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 18(1), pages 1-19, January.
    4. Kohn, David & Leibovici, Fernando & Szkup, Michal, 2020. "Financial frictions and export dynamics in large devaluations," Journal of International Economics, Elsevier, vol. 122(C).
    5. Kang, Hyunju, 2013. "Behind the scenes of abandoning a fixed exchange rate regime," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 3145-3156.
    6. Fornaro, Luca, 2015. "Financial crises and exchange rate policy," Journal of International Economics, Elsevier, vol. 95(2), pages 202-215.
    7. Kuralbayeva, Karlygash, 2013. "Optimal fiscal policy and different degrees of access to international capital markets," Journal of Development Economics, Elsevier, vol. 103(C), pages 336-352.
    8. U. Michael Bergman & Shakill Hassan, 2008. "Currency Crises and Monetary Policy in an Economy with Credit Constraints: The No Interest Parity Case," EPRU Working Paper Series 08-01, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
    9. Philip R. Lane & Jay C. Shambaugh, 2010. "Financial Exchange Rates and International Currency Exposures," American Economic Review, American Economic Association, vol. 100(1), pages 518-540, March.
    10. Romain Restout, 2008. "Monopolistic Competition and the Dependent Economy Model," EconomiX Working Papers 2008-9, University of Paris Nanterre, EconomiX.
    11. Sushanta Mallick & Helena Marques, 2008. "Passthrough of Exchange Rate and Tariffs into Import Prices of India: Currency Depreciation versus Import Liberalization," Review of International Economics, Wiley Blackwell, vol. 16(4), pages 765-782, September.
    12. Vasco Gabriel & Paul Levine & Joseph Pearlman & Bo Yang, 2010. "An Estimated DSGE Model of the Indian Economy," School of Economics Discussion Papers 1210, School of Economics, University of Surrey.
    13. Anand, Rahul & Prasad, Eswar, 2010. "Optimal Price Indices for Targeting Inflation under Incomplete Markets," IZA Discussion Papers 5137, Institute of Labor Economics (IZA).
    14. Xu, Juanyi, 2011. "The optimal currency basket under vertical trade," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1323-1340.
    15. Daragh Clancy & Rossana Merola, 2016. "ÉIRE Mod: A DSGE Model for Ireland," The Economic and Social Review, Economic and Social Studies, vol. 47(1), pages 1-31.
    16. Quoc Hung Nguyen, 2007. "Liability Dollarization and Fear of Floating," Working Papers 16, Development and Policies Research Center (DEPOCEN), Vietnam, revised May 2008.
    17. Robert-Paul Berben & Jan Marc Berk, 2002. "Requirements for successful currency regimes: the Dutch and Thai experiences," MEB Series (discontinued) 2002-16, Netherlands Central Bank, Monetary and Economic Policy Department.
    18. Sushanta Mallick & Ricardo Sousa, 2013. "Commodity Prices, Inflationary Pressures, and Monetary Policy: Evidence from BRICS Economies," Open Economies Review, Springer, vol. 24(4), pages 677-694, September.
    19. Andrei Polbin & Sergey Drobyshevsky, 2014. "Developing a Dynamic Stochastic Model of General Equilibrium for the Russian Economy," Research Paper Series, Gaidar Institute for Economic Policy, issue 166P, pages 156-156.
    20. Javier García-Cicco, 2010. "Estimating Models for Monetary Policy Analysis in Emerging Countries," Working Papers Central Bank of Chile 561, Central Bank of Chile.

    More about this item

    Keywords

    Two-sector model; Current account; Shock persistence; Terms of trade; Exchange rate regimes.;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ebl:ecbull:eb-11-00131. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: John P. Conley (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.