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