Current Account and Exchange Rate Dynamics in Presence of Risk and Economic Shocks
Satyajit Ghosh
Economics/Finance Department, The Arthur J. Kania School of Management, University of Scranton, Scranton, PA 18510-4602, USA
Ioannis N. Kallianiotis *
Economics/Finance Department, The Arthur J. Kania School of Management, University of Scranton, Scranton, PA 18510-4602, USA
*Author to whom correspondence should be addressed.
Abstract
The paper is using a two period model of consumption and current account balance and tries to determine the dynamics of the exchange rates by taking into consideration the increases in oil prices, national debts, budget and trade deficits, the global uncertainty, and the enormous liquidity, due to the recent financial crisis and recession. Specifically, in this paper we have used the insights of an intertemporal model of consumption to analyze the recent behavior of the current account balance in the U.S. We have examined the roles of risk, price of gold, price of oil, TED spread, as well as interest rate, GDP and government spending. We have also analyzed the behavior of spot rate.
Keywords: Exchange rate determination, current account, oil prices, national debt, uncertainty, multiple regression, cointegration test