What Determines a Country's Current Account and Exchange Rate? - a Tale of Two External Drivers

To make a meaningful response logic to future exchange rate pressures, we monitor the determinants of the current account and exchange rate. First, according to the analysis of current account determinants, the current account imbalance will gradually ease from a long-term and structural perspective if the domestic financial market develops or access to the international financial market is strengthened. In addition, existing structural current account estimates that do not take into account international financial market conditions may have underestimated the structural current account balance of emerging countries such as Korea. Second, based on the analysis of the currency determinants, we can argue that the weak won is structurally inevitable due to the weak yuan.