Exchange Rate and Current Account Dynamics Under Rational Expectations: An Econometric Analysis

David H. Papell

NBER Working Paper No. 1576
Issued in March 1985
NBER Program(s):   ITI   IFM

An econometric portfolio balance model of an open economy, incorporating exchange rate, price, and current account dynamics, is derived and estimated.The usual stability conditions do not guarantee a unique rational expectations solution, and several proposals for resolving this situation are considered. Using constrained maximum likelihood methods, the model is estimated for Japan.The estimation results indicate that the model is quite successful in explaining the patterns found in the data. The model is estimated using several methods of resolving the question of non-uniqueness, and the results are compared.

(442 K)

(227 K)

Published:

• Published as "Anticipated and Unanticipated Disturbances: The Dynamics of the Exchange Rate and the Current Account", Journal of International Money and Finance, Vol. 3, no. 2 (1984): 179-193. ,
• "Exchange Rate and Current Account Dynamics Under Rational Expectations: An Economic Analysis", International Economic Review, Vol. 27no. 3 (1986): 583-600.

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