Search results for "Current Account"
showing 10 items of 27 documents
Cross-country variation in patience, persistent current account imbalances and the external wealth of nations
2022
This paper is the first to utilize large-scale international surveys on economic preferences to examine the long-run relationships between patience, current accounts and external wealth. We find robust empirical evidence that countries with more patient individuals tend to run persistent current account surpluses, which in turn result in the accumulation of foreign assets. This theoretically plausible but empirically unexplored relationship holds true for euro area current account imbalances, global current account imbalances and net foreign asset positions worldwide. While the existing current account literature concentrates on proximate macroeconomic determinants, this paper’s extension o…
Trade imbalances within the euro area and with respect to the rest of the world
2015
Abstract Many studies have explored the determinants of current account balances in Europe. However, only in a few studies has trade balance been decomposed into intra balance, trade balance vis-a-vis the euro area, and extra balance, trade balance vis-a-vis the rest of the world. This decomposition is necessary for us to understand why some core euro area countries are acting as financial intermediaries for the periphery countries. Furthermore, the determinants of intra and extra balances might be different because nominal exchange rate cannot adjust between the EMU countries while their financial markets are highly integrated. Thus, we apply this decomposition and supplement the previous …
The Equilibrium Real Exchange Rate of Germany
1997
The NATREX model defines the fundamental determinants of the equilibrium real effective exchange rate in the medium to longer run. The PPP theory is a special case of the NATREX when a linear combination of the fundamentals, which are productivity and social thrift, is stationary. The differences in social thrift under Schmidt and Kohl, and the effects of the European terms of trade upon the q-ratio, explain the variations in the NATREX in the preunification period. The actual real exchange rate of the German mark converged to the NATREX. In the postunification period, the medium run NATREX increased due to the rise in time preference and the cyclically adjusted q-ratio. The actual real exc…
Blessed Mary, Forgive Us Our Deficits
2013
Many studies have explored the medium-term determinants of current account balances. This paper contributes to the existing literature by introducing religious variables that until now have been omitted. We propose that Catholic countries tend to run current account deficits. This result remains robust even if we include both the official financial flows and the variables measuring the quality of institutions. In total we control for close to all of the variables that have been included in previous studies. To rationalize our result we consulted the World Values Survey and discovered that Roman Catholics do not consider thrift as important as other religious groups.
Banking Crises and Short and Medium Term Output Losses in Developing Countries: The Role of Structural and Policy Variables
2010
The aim of this work is to assess the short and medium term impact of banking crises on developing economies. Using an unbalanced panel of 159 countries from 1970 to 2006, the paper shows that banking crises produce significant output losses, both in the short and in the medium term. The effect depends on structural and policy variables. Output losses are larger for relatively more wealthy economies, characterized by a higher level of financial deepening and larger current account imbalances. Flexible exchange rates, fiscal and monetary policy have been found to be efficient tools to attenuate the effect of the crises. Among banking intervention policies, liquidity support resulted to be th…
Global imbalances and the intertemporal external budget constraint: A multicointegration approach
2013
Abstract This paper analyzes the external solvency of a group of 23 OECD countries for the period 1970–2012. The empirical strategy adopted underlines the increasing importance of the financial channel for the external adjustment as proposed in Gourinchas and Rey (2007) . We unify the traditional approaches to testing for external sustainability considering the stock-flow system created by the variables representing the external relationships of an open economy. External sustainability is tested using several types of cointegration and multicointegration tests. The results obtained point to weak sustainability in the flows analysis, whereas some degree of strong sustainability is found for …
External imbalances from a GVAR perspective
2021
In this paper we study the drivers governing external disequilibria through a Global VAR (GVAR) analysis applied to a group of 24 countries during the period 1972-2017. The GVAR methodology is particularly well suited for our research question. First, it permits to measure the effects of both, domestic and foreign country-specific shocks. Second, it allows to analyze not only the long-run relationships, but also the dynamics through generalized impulse-response functions. Third, it enables to test many hypotheses from a macroeconomic perspective and the existence of spillovers. Our results show evidence of international financial integration in terms of the fulfillment of the real interest …
Coordination of Wage Bargaining, Exchange Rate Stability and External Adjustment
2016
The literature on the determinants of the rate of current account reversion has been limited to examining the role of exchange rate regimes. We propose that the degree of coordination of wage bargaining affects the speed of current account adjustment. Our point estimates are economically and statistically significant, suggesting that fragmented firm-level wage bargaining facilitates external adjustment. We also find a strong negative interaction between the effects of coordination of wage bargaining and exchange rate stability on the rate of current account reversion.
Effects of external imbalances on GDP recovery patterns
2021
Abstract A decade after the beginning of the Great Recession, flow external imbalances, measured by the current account (CA) have narrowed markedly. However, stock or net foreign assets (NFA) imbalances have kept increasing and have created challenges for future macroeconomic and financial stability. To date, early warning systems (scoreboards) have focused more on flow than on stock variables. To approach this problem, in this paper we analyze expansions using two complementary sets of indicators proposed by Harding and Pagan (2002) and Gadea et al. (2017) for the period 1950–2016. After controlling for a large set of explanatory variables, we find that the effect of CA imbalances is limit…
Current Account Adjustment and Retained Earnings
2018
This paper develops a formal strategy to calculate current accounts with retained earnings (RE) on equity investment and analyzes their adjustment during the global financial crisis. RE are the part of companies' profits which are reinvested and not distributed to shareholders as dividends. International statistical standards treat RE on foreign direct investment and RE on portfolio investment differently: while the former enter the current and financial account, the latter do not. We show that this differential treatment strongly affects current accounts of several advanced economies, frequently referred to as financial centers, with large positions in equity (portfolio) investment. Our em…