The Dynamic of Current Account in Emerging East-Asian:Does Exchange Rate Matter?

Sek, Siok Kun; Chuah, C. L.

doi:10.7763/ijtef.2011.v2.120

Cited by 6 publications

(5 citation statements)

References 14 publications

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“…The result of GMM from 1973 to 2010 for the quarterly data of Thailand, the Philippines, Korea, and Indonesia showed differential impact due to frequent changes in policies. (Sek & Chuah, 2011), analysed current account concerning changes in exchange rate regimes from 1980Q1 to 2010Q4 for Thailand, Malaysia, Singapore, Korea, and the Philippines. They reveal that the current account is not affected due to changes in the exchange rate regime in the post-crisis.…”

Section: Literature Reviewmentioning

confidence: 99%

Modelling the determinants and Sustainability of Current Account of Pakistan

Ahmed,

Jawaid,

Tabasam

et al. 2023

Zagreb International Review of Economics and Business

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The study investigated the determinants of the current account deficit from 1976 to 2020 for the economy of Pakistan, and its sustainability. The persistent deficit is necessary to be sustainable if it will be paid off shortly otherwise it will pile up external debt. The conventional methodology concluded that current account deficit (CAD) of Pakistan is unsustainable, albeit one measure suggests sustainability. There is cointegration among variables and domestic saving, external debt, fiscal deficit and trade deficit has positive whereas exchange rate and worker’s remittances have a negative relation with the current account, all the results are significant. The negative sign of the error correction term confirms restoration of equilibrium and it is also significant. Bidirectional causality is reported between the worker’s remittances, exchange rate and external debt with CAD. Unidirectional causality is seen from CAD to trade deficit and fiscal deficit. The diagnostic tests of the model confirm robustness. The government should favour an investment-friendly environment to increase economic activity in the country besides improving domestic savings and reducing the external deficit.

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Section: Literature Reviewmentioning

confidence: 99%

Modelling the determinants and Sustainability of Current Account of Pakistan

Ahmed,

Jawaid,

Tabasam

et al. 2023

Zagreb International Review of Economics and Business

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show abstract

“…Many other studies (Miles, 1979; Rose, 1990; Sek and Chuah, 2011; Ball et al , 1977) advocated that currency devaluation does not affect current account or trade balance. Miles (1979) empirically found no evidence to support the argument that devaluation improves the trade balance both in the short and long run albeit the balance of payment seems to improve in the year following devaluation under the pooled cross-section time-series technique.…”

Section: Literature Reviewsmentioning

confidence: 99%

“…As Senhadji and Montenegro (1998) stated, Africa has the lowest price and income elasticities reflecting the structure of the region’s main exports and imports. Sek and Chuah (2011) also examined the impact of exchange rate shock on the current account balance in ASEAN economies, and found that exchange rate has no impact on the current account balance during the post-crisis in all ASEAN economies except Malaysia. Rather, real current account shock and consumer prices are the main determinants of the current account balance.…”

Section: Literature Reviewsmentioning

confidence: 99%

Does real exchange rate devaluation improve the current account balance of highly indebted low income countries?

Ayele

2019

AJEMS

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Purpose The purpose of this paper is to examine whether real exchange rate devaluation improves the current account balance of four highly indebted low-income countries of East Africa. Design/methodology/approach The pooled mean group (PMG) approach is used for panel data from four countries over the period 1970–2016. The paper also applied bound testing and ARDL model for time-series data from individual sample countries. Findings The panel PMG/ARDL estimation result reveals that real exchange rate devaluation has no significant impact on the current account balance, both in the short and long run. However, the time-series analysis using the bound testing and restricted ARDL estimation suggests that real exchange rate devaluation improves the current account balance in the long run for only Ethiopia. The overall empirical results reveal that the current account balance would improve with the rising domestic income while it deteriorates with increasing foreign income and external indebtedness in the long run. Originality/value The paper is original.

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“…The similarity in the direction of exchange rate movement is also confirmed by the correlation values as shown in Table AI. One possible reason for the depreciation of currencies is persistent deficit on its current account (Sek and Chuah, 2011), as is shown in Table AII.…”

Section: Exchange Market Pressure Indexmentioning

confidence: 99%

Effect of International Clearing Union on exchange market pressure

Shekhawat

Kathuria

2018

JES

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Purpose The purpose of this paper is to enhance our understanding of effects of International Clearing Unions on the exchange market pressure (EMP). Using Asian Clearing Union (ACU) as an example of a typical International Clearing Union, the authors infers that ACU has not been very successful in synchronizing the EMP in the region. Other countries that are not members of such clearing union but are interested in monetary cooperation with other countries should consider the behavior of their EMP indices before attempting any form of integration. The study also provides a generic methodology for using EMP as an indicator for predicting the feasibility of monetary cooperation across countries. Design/methodology/approach An EMP model using the median absolute deviation is derived to reflect the policy preferences of each country. The weights for change in foreign reserves and interest rate differential are derived using analytical models. The index is then applied to ACU as a case study using monthly data from 2006 to 2015 for Bhutan, Bangladesh, Nepal, India, Pakistan, Sri Lanka and Iran. The descriptive statistics are studied to find the possibility of short-run relationship between the exchange rates, foreign exchange reserves and interest rate differential. The longitudinal data set generated is checked for cointegration to evaluate the EMPs of the countries. Findings The study finds that the EMP of ACU members’ shows similarity only in short-term movement but have no cointegration of EMP indices indicating the absence of long-term relationship. The absence of long-term cointegration of EMP for ACU members also indicates that ICU membership may not necessarily lead to similarity in exchange rate policies that facilitate the formation of a currency union. Creation of an ICU is not a sufficient condition for the formation of a currency union. The study also finds that the sample countries have faced persistent depreciation pressures in the period. The preferred tool for the management of EMP is direct intervention by sale and purchase of foreign currency. Interest rate changes are found to have the most significant effect on EMP. Research limitations/implications The EMP model limits itself only to the study of exchange rates, foreign reserves and interest rates. Exchange rate variation and policy responses there to are known to be driven by other factors such as speculation, political factors, autonomous capital flows and micro-level dynamics of exchange markets like order flows among others. The EMP model is a simplification of the market dynamics and does not look for associations on the account of these factors. The model is evaluated for only one ICU where member countries regulate exchange rates. The study of ICUs that comprises free float currencies and pegged currencies may yield different results. Practical implications Results indicate that the member of any ICU such as ACU cannot assume that its participation will serve as a foundation for creating higher forms of economic unions such as currency unions. In the absence of any long-term relationship between the EMP of countries, any attempt by these countries may cause the exchange rates to deviate further. This leads to the conclusion that the members of ACU should avoid any attempts to form currency unions or use a common currency for its settlement. Social implications Various countries that are considering the formation of currency union or the use of a common currency peg may like to examine its feasibility using EMP as a tool. Using EMP, they may be able to derive short-term and long-term strategies for pursuing their objectives. Originality/value There are few other studies that use EMP as an index for measuring the feasibility of formation of a currency union among countries that are the member of an ICU. While earlier studies apply EMP to a group of countries, none attempt to modify the index to reflect the EMP that is likely to affect central bank policy action. Few studies have attempted to use EMP to study the feasibility of formation of a currency union in South Asia based on exchange rate markets itself.

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The Dynamic of Current Account in Emerging East-Asian:Does Exchange Rate Matter?

Cited by 6 publications

References 14 publications

Modelling the determinants and Sustainability of Current Account of Pakistan

Modelling the determinants and Sustainability of Current Account of Pakistan

Does real exchange rate devaluation improve the current account balance of highly indebted low income countries?

Effect of International Clearing Union on exchange market pressure

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