Endogenous current account balances in a world CGE model with international financial assets
AbstractThis paper presents an applied computable general equilibrium world model with financial assets and endogenous current account, and capital and financial account balances. The capital and financial account equilibrium conditions, rather than exogenous rules, constrain the current account balance. International capital flows which balance the current account are constrained by supply-and-demand equilibrium conditions on the market for international debt securities, under portfolio managers' optimizing behavior. The asset–liability structure of the financial portfolio is endogenous, and it is possible for a country-agent to have negative net financial assets. In simulations, the interaction of portfolio choices with trade supply and demand behavior leads to endogenous sign reversals in some current account balances, and it results in a different allocation of investment among regions, compared to a model with exogenously determined current account balances. In the reference scenario, this allocation generates growth that is about the same globally, but differently distributed between regions.
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Bibliographic InfoArticle provided by Elsevier in its journal Economic Modelling.
Volume (Year): 32 (2013)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/inca/30411
World CGE model; International investment position; Current account balances; Capital and financial account;
Find related papers by JEL classification:
- C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
- F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
- F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
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