The current account - interest rate relationship has been extensively investigated, hut always as.suming that it is linear. In this paper we examine the linearity versus nontinearity issue with reference to this relationship in 11 OECD countries. and find overwhelming evidence in favour of nonlinearity. After testing alternative nonlinear specifications, we estimate a smooth tran.sition regression model and a nonlinear VAR model. Finally, we provide a study of the innovation response analysis that shows adjustment behaviours of the two variables. The implications of the results are discussed.
The current account-interest rate relationship as a nonlinear phenomenon / Belloc, Marianna; Gandolfo, Giancarlo. - In: THE JOURNAL OF INTERNATIONAL TRADE ECONOMIC DEVELOPMENT. - ISSN 0963-8199. - STAMPA. - 14 (2):(2005), pp. 145-166. [10.1080/09638190500092986]
The current account-interest rate relationship as a nonlinear phenomenon
Belloc, Marianna
;Gandolfo, Giancarlo
2005
Abstract
The current account - interest rate relationship has been extensively investigated, hut always as.suming that it is linear. In this paper we examine the linearity versus nontinearity issue with reference to this relationship in 11 OECD countries. and find overwhelming evidence in favour of nonlinearity. After testing alternative nonlinear specifications, we estimate a smooth tran.sition regression model and a nonlinear VAR model. Finally, we provide a study of the innovation response analysis that shows adjustment behaviours of the two variables. The implications of the results are discussed.| File | Dimensione | Formato | |
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