Is There a Threshold in the Exchange Rate-Current Account Nexus? Evidence from Korea
Description
This study tests whether Korea's aggregate current account responds to the exchange rate in a level-dependent way, unlike the directional asymmetry documented in bilateral trade balances. Combining Hansen's (2000) threshold regression with Hansen's (1996) residual bootstrap on quarterly data for 2000–2025, we find no threshold in the nominal KRW/USD rate. In the real effective exchange rate (REER), a single threshold near REER is marginally significant. Below that level, error correction is fast, and both appreciation and depreciation shocks move the current account; above it, the channel weakens sharply. The threshold is not sharply localized, and its significance depends on the trimming parameter, so we read the evidence as suggestive rather than confirmatory of regime dependence.