International monetary policy trilemma—the tradeoff among exchange rate stability, monetary independence, and unrestricted capital mobility—is an important constraint for policy makers in an open economy. This paper investigates an aspect of the hypothesis that has received relatively less...

This paper investigates the joint dynamic response of the current account and the real exchange rate to permanent and temporary shocks using structural VAR models for seven developed and five developing countries. Due to the ambiguity of the unit roots test, model specification based on both...