Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/306061 
Year of Publication: 
2022
Citation: 
[Journal:] Economics: The Open-Access, Open-Assessment Journal [ISSN:] 1864-6042 [Volume:] 16 [Issue:] 1 [Year:] 2022 [Pages:] 57-72
Publisher: 
De Gruyter, Berlin
Abstract: 
This study analyzes the relationships between domestic and foreign output gaps, current-account imbalances, and real effective exchange-rate (REER) misalignments. We first set up a theoretical framework based on the elasticities and absorption approaches of the balance of payments to derive and clarify these relationships. Next, we perform panel VAR estimates in a sample of 18 advanced economies between 1986 and 2017. We find an inverse relationship between domestic output gaps and current accounts with reciprocal influences between the two variables. Moreover, we observe that increases in current accounts generally boost both temporary and structural growth. Additionally, our results indicate that REER misalignment shocks cause reactions of the opposite sign on the current account and on cyclical economic growth. We also find evidence of higher growth resulting in a real exchange-rate appreciation, which supports the Balassa-Samuelson hypothesis.
Subjects: 
Balassa-Samuelson hypothesis
current account imbalances
output gap
PVAR
real exchange-rate misalignment
JEL: 
F32
F41
F47
F49
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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