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As opposed to the disequilibrium approach, which emphasizes the current account, equilibrium approach highlights the capital account.
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We have a positive current account balance.
Current account balance is exogenous.
So even though PPPs are handy for converting living standards (GDP per person) into a common currency, there are not necessarily the best way to judge the exchange rate needed to bring the current account of the balance of payments into "equilibrium".
One is the fundamental-equilibrium exchange rate (FEER), which is the rate consistent with a steady economy at full employment and a sustainable current-account balance.
Its current account is roughly in balance.
Also, we need to work with other countries toward equilibrium exchange rates, as part of redressing our current account imbalances.
We use this model to match four empirical regularities regarding emerging markets: defaults occur in equilibrium, interest rates are countercyclical, net exports are countercyclical, and interest rates and the current account are positively correlated.
Current account in surplus.
Have I got the right current account?
Forecasts of the current account surplus diverge.
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