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Productivity shocks and the current account: An alternative perspective of capital market integration

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  • Decressin, Jörg
  • Disyatat, Piti

Abstract

This paper presents an analysis of capital market integration grounded in the intertemporal model of the current account. The model is extended to encompass liquidity constraints and fitted to data for euro-area countries and Italian and Canadian regions. With respect to capital mobility, regions within countries serve as a natural benchmark for the euro-area currency union. The empirical results are generally consistent with the model with respect to the responses of investment and the current account to productivity shocks, and also suggest that liquidity constraints at the country level do not add significantly to constraints at the regional level.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 27 (2008)
Issue (Month): 6 (October)
Pages: 897-914

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Handle: RePEc:eee:jimfin:v:27:y:2008:i:6:p:897-914

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Web page: http://www.elsevier.com/locate/inca/30443

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  1. Xavier Sala-i-Martin, 1994. "Regional cohesion: Evidence and theories of regional growth and convergence," Economics Working Papers 104, Department of Economics and Business, Universitat Pompeu Fabra.
  2. Barry Eichengreen., 1990. "Is Europe an Optimum Currency Area?," Economics Working Papers 90-151, University of California at Berkeley.
  3. Glick, Reuven & Rogoff, Kenneth, 1995. "Global versus country-specific productivity shocks and the current account," Journal of Monetary Economics, Elsevier, vol. 35(1), pages 159-192, February.
  4. Gregory, Allan W. & Head, Allen C., 1999. "Common and country-specific fluctuations in productivity, investment, and the current account," Journal of Monetary Economics, Elsevier, vol. 44(3), pages 423-451, December.
  5. Bernard, Andrew B & Jones, Charles I, 1996. "Productivity across Industries and Countries: Time Series Theory and Evidence," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 135-46, February.
  6. John Y. Campbell & Pierre Perron, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know About Unit Roots," NBER Technical Working Papers 0100, National Bureau of Economic Research, Inc.
  7. Dekle, Robert, 1996. "Saving-investment associations and capital mobility On the evidence from Japanese regional data," Journal of International Economics, Elsevier, vol. 41(1-2), pages 53-72, August.
  8. Razin, A., 1993. "The Dynamic-Optimizing Approach to the Current Account: Theory and Evidence," Papers 2-93, Tel Aviv - the Sackler Institute of Economic Studies.
  9. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
  10. Campbell, John Y. & Mankiw, N. Gregory, 1991. "The response of consumption to income : A cross-country investigation," European Economic Review, Elsevier, vol. 35(4), pages 723-756, May.
  11. Bernard, Andrew B & Jones, Charles I, 1996. "Comparing Apples to Oranges: Productivity Convergence and Measurement across Industries and Countries," American Economic Review, American Economic Association, vol. 86(5), pages 1216-38, December.
  12. Shibata, A. & Shintani, M., 1994. "Capital Mobility in the World Economy: An Alternative Measure," ISER Discussion Paper 0330, Institute of Social and Economic Research, Osaka University.
  13. Olivier Blanchard & Francesco Giavazzi, 2002. "Current Account Deficits in the Euro Area: The End of the Feldstein Horioka Puzzle?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 33(2), pages 147-210.
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Citations

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Cited by:
  1. Smith, Constance E., 2011. "External balance adjustment: An intra-national and international comparison," Journal of International Money and Finance, Elsevier, vol. 30(6), pages 1195-1213, October.
  2. Pascal Towbin, 2013. "Financial Integration And External Sustainability," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 18(4), pages 375-395, October.
  3. Lai, Jennifer T. & McNelis, Paul D. & Yan, Isabel K.M., 2013. "Regional capital mobility in China: Economic reform with limited financial integration," Journal of International Money and Finance, Elsevier, vol. 37(C), pages 493-503.

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