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Global versus country-specific productivity shocks and the current account

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  • Glick, Reuven
  • Rogoff, Kenneth

Abstract

The intertemporal approach to the current account is often regarded as theoretically elegant but of limited empirical significance. This paper derives highly tractable current account and investment specifications that we estimate without resorting to calibration or simulation methods. In time-series data for eight industrialized countries, we find that country-specific productivity shocks tend to worsen the current account, whereas global shocks have little effect. Both types of shock raise investment. It is a puzzle, however, for the intertemporal model that long-lasting local productivity shocks have a larger impact effect on investment than on the current account.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 35 (1995)
Issue (Month): 1 (February)
Pages: 159-192

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Handle: RePEc:eee:moneco:v:35:y:1995:i:1:p:159-192

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Web page: http://www.elsevier.com/locate/inca/505566

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References

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  22. Nouriel Roubini, 1988. "Current Account and Budget Deficits in an Intertemporal Model of Consumption and Taxation Smoothing. A Solution to the "Feldstein-Horioka Puzzle"?," NBER Working Papers 2773, National Bureau of Economic Research, Inc.
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