Shock Persistence and Current Account Dynamics

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.

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Year of publication:	2011
Authors:	Shi, Kang
Published in:	Economics Bulletin. - AccessEcon, ISSN 1545-2921. - Vol. 31.2011, 3, p. 2260-2271
Publisher:	AccessEcon
Subject:	Two-sector model \| Current account \| Shock persistence \| Terms of trade \| Exchange rate regimes

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Extent:	application/pdf
Type of publication:	Article
Language:	English
Classification:	F3 - International Finance ; F4 - Macroeconomic Aspects of International Trade and Finance
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10009200972