During the past three decades, Japan s current account experienced five large swings. The yen appreciated considerably in periods when the current account boomed, and it depreciated whenever Japan s external performance weakened. However, there has always been a certain lag in the adjustment of...

According to the most common understanding, currency crises are always and everywhere a monetary phenomenon. Based on a formal theoretical model and ample empirical evidence, this article argues instead that currency crises are always and everywhere about external imbalances. They are usually...

The balance of payments is an accounting identity. Many wonder how the current and capital accounts, which add up to zero, can influence exchange rates. This paper shows how payment flows arising from balance of payments imbalances affect the demands for different currencies in the foreign...

During the past three decades, Japan's current account experienced five large swings. The yen appreciated considerably in periods when the current account boomed, and it depreciated whenever Japan's external performance weakened. However, there has always been a certain lag in the adjustment of...

Japan’s long-lasting current account surplus as well as Germany’s temporary surplus during the 1980s are the two largest current account surpluses the world has witnessed. Remarkably, net exports were rising in both countries despite the large overall appreciation of the Japanese yen and the...