The goal of this paper is to address the role of the real effective exchange rate (fundamentals, misalignment and volatility) for the current account using a panel data analysis for a set of 58 countries, over the period of 1994-2014. The results suggest that exchange rate misalignment is...

The acceleration in the formation of global imbalances in the period preceding the last financial crisis prompted a revival of the debate on whether exchange rate regimes affect the flexibility of the current account (ie its degree of mean reversion), as originally proposed by Friedman (1953). I...

This paper studies the impact of the state-dependent risk of a government default on the correlation of the scal balance and current account. We use a small open economy model where nonlinear risk premia arise endogenously when the government operates close to its scal limit, i.e. the maximum...

Financially closed economies insure themselves against current-account shocks using international reserves. We characterize the optimal management of reserves using an open-economy model of precautionary savings and emphasize several results. First, the welfare-based opportunity cost of reserves...

This paper explores the relation between stock prices and the current account for 17 OECD countries in 1980-2007. I use a panel vector autoregression (VAR) to compare the effects of stock price shocks to those originating from monetary policy and exchange rates. While monetary policy shocks have...

This study assesses the response of the trade balance to exchange rate fluctuations across a large number of countries. Fixed-effects regressions are estimated for 87 countries on annual data from 1994 to 2010. The trade balance improves significantly after a real depreciation, and to a similar...

Currently the U.S. is experiencing record budget and current account deficits, a phenomenon familiar from the Twin Deficits discussion of the 1980s. In contrast, during the 1990s productivity growth has been identified as the primary cause of the U.S. current account deficit. We suggest a...

Somalia has been a stateless nation for over two decades, where government institutions have been destroyed and malfunctioned, including the central bank. Consequently, this ruled out the control and regulation of the money supply and exchange rate by the central bank. This study investigates...