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Chen Fang and Cheng-te Lee
''Coexistence of Sustained External Imbalance and Real Exchange Rate Misalignment: The Underlying Fundamentals''
( 2014, Vol. 34 No.3 )
By focusing on the macroeconomic effects of temporary price shocks, this note clarifies the relationships among the terms of trade, the real exchange rate and the current account. This clarification suggests that a real depreciation might prove incapable of bringing the external imbalance back to a sustainable level.
Keywords: terms of trade; current account; real exchange rate; intratemporal substitutability.
JEL: F3 - International Finance: General
F4 - Macroeconomic Aspects of International Trade and Finance: General
Manuscript Received : Apr 10 2014 Manuscript Accepted : Aug 06 2014

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