Conference Proceedings
Real exchange rate and current account dynamics with sticky prices and distortionary taxes
GC Lim, PD McNelis
Proceedings of 2005 International Conference on Neural Networks and Brain Proceedings Icnnb 05 | IEEE | Published : 2005
Abstract
This paper examines the interaction of real exchange rates and currenct account movmements in open economices subject to monopolistic competition with sticky price-setting behavior and distoriontary taxes. We find that the correlations between fiscal balances and the current account depend on the elasticity of net exports with respect to the real exchange rate. Under highly elastic export demand, the welfare effects may be greater or lower than under export demand with a low elasticity. © 2005 IEEE.