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Current account balances and output volatility

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  • Elgin, Ceyhun
  • Kuzubas, Tolga Umut

Abstract

In this paper, we examine the empirical relationship between current account balance and output volatility in a panel data framework using annual data from 185 countries over the period from 1950 to 2010. In our static panel data analysis, we find that a larger current account deficit is associated with higher output volatility, particularly for emerging market economies. Our analysis reveals that this association strongly interacts with GDP per-capita. In order to account for possible endogeneity and feedback effects, we also employ a Panel-VAR framework and show that output volatility gives a significant positive response to a shock in the current account balance and a negative response to the shocks on GDP per-capita capita.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 33 (2013)
Issue (Month): C ()
Pages: 381-387

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Handle: RePEc:eee:ecmode:v:33:y:2013:i:c:p:381-387

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Web page: http://www.elsevier.com/locate/inca/30411

Related research

Keywords: Current account balances; Business cycle volatility; Panel data;

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  1. Mark Aguiar & Gita Gopinath, 2004. "Emerging market business cycles: the cycle is the trend," Working Papers 04-4, Federal Reserve Bank of Boston.
  2. Menzie D. Chinn & Eswar S. Prasad, 2000. "Medium-Term Determinants of Current Accounts in Industrial and Developing Countries: An Empirical Exploration," NBER Working Papers 7581, National Bureau of Economic Research, Inc.
  3. Anderson, T. W. & Hsiao, Cheng, 1982. "Formulation and estimation of dynamic models using panel data," Journal of Econometrics, Elsevier, vol. 18(1), pages 47-82, January.
  4. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
  5. Lane, Philip R. & Pels, Barbara, 2012. "Current Account Imbalances in Europe," CEPR Discussion Papers 8958, C.E.P.R. Discussion Papers.
  6. Love, Inessa & Zicchino, Lea, 2006. "Financial development and dynamic investment behavior: Evidence from panel VAR," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(2), pages 190-210, May.
  7. Westerlund, Joakim, 2005. "Testing for Error Correction in Panel Data," Working Papers 2005:11, Lund University, Department of Economics.
  8. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-95, November.
  9. Aguiar, Mark & Gopinath, Gita, 2007. "Emerging Market Business Cycles: The Cycle is the Trend," Scholarly Articles 11988098, Harvard University Department of Economics.
  10. Peter Isard & Hamid Faruqee, 1998. "Exchange Rate Assessment," IMF Occasional Papers 167, International Monetary Fund.
  11. MichaƂ Brzozowski & Sadananda Prusty, 2011. "Impact of GDP volatility on current account balances," Working Papers 2011-02, Faculty of Economic Sciences, University of Warsaw.
  12. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
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