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Kang Shi
''Shock Persistence and Current Account Dynamics''
( 2011, Vol. 31 No.3 )
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.
Keywords: Two-sector model, Current account, Shock persistence, Terms of trade, Exchange rate regimes.
JEL: F3 - International Finance: General
F4 - Macroeconomic Aspects of International Trade and Finance: General
Manuscript Received : Feb 24 2011 Manuscript Accepted : Aug 09 2011

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