Advanced Search
MyIDEAS: Login to save this article or follow this journal

Asset Prices and Current Account Fluctuations in G-7 Economies

Contents:

Author Info

  • Marcel Fratzscher
  • Roland Straub

Abstract

The paper analyses the effect of equity-price shocks on current account positions for the G-7 industrialized countries during 1974–2007. It uses a Bayesian vector autoregression with sign restrictions for the identification of equity-price shocks and to test empirically for their effect on current accounts. Such shocks are found to exert a sizable effect, with a 10 percent equity price increase, for example, in the United States relative to the rest of the world, worsening the U.S. trade balance by 0.9 percentage points after 16 quarters. However, the response of the trade balance to equity-price shocks varies substantially across countries. The evidence suggests that the channels accounting for this heterogeneity function both through wealth effects on private consumption and to some extent through the real exchange rate of countries. IMF Staff Papers (2009) 56, 633–654. doi:10.1057/imfsp.2009.8; published online 26 May 2009

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.palgrave-journals.com/imfsp/journal/v56/n3/pdf/imfsp20098a.pdf
File Function: Link to full text PDF
Download Restriction: Access to full text is restricted to subscribers.

File URL: http://www.palgrave-journals.com/imfsp/journal/v56/n3/full/imfsp20098a.html
File Function: Link to full text HTML
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Palgrave Macmillan in its journal IMF Staff Papers.

Volume (Year): 56 (2009)
Issue (Month): 3 (August)
Pages: 633-654

as in new window
Handle: RePEc:pal:imfstp:v:56:y:2009:i:3:p:633-654

Contact details of provider:
Web page: http://www.palgrave-journals.com/

Order Information:
Postal: Palgrave Macmillan Journals, Subscription Department, Houndmills, Basingstoke, Hampshire RG21 6XS, UK
Email:
Web: http://www.palgrave-journals.com/pal/subscribe/index.html

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Aart Kraay & Jaume Ventura, 2005. "The Dot-Com Bubble the Bush Deficits, and the U.S. Current Account," NBER Working Papers 11543, National Bureau of Economic Research, Inc.
  2. Jiandong Ju & Shang-Jin Wei, 2006. "A Solution to Two Paradoxes of International Capital Flows," NBER Working Papers 12668, National Bureau of Economic Research, Inc.
  3. Fratzscher, Marcel & Juvenal, Luciana & Sarno, Lucio, 2009. "Asset Prices, Exchange Rates and the Current Account," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7614, C.E.P.R. Discussion Papers.
  4. Gert Peersman, 2005. "What caused the early millennium slowdown? Evidence based on vector autoregressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 20(2), pages 185-207.
  5. Alessandra Fogli & Fabrizio Perri, 2006. "The "Great Moderation" and the US External Imbalance," Working Papers, Laboratory for Macroeconomic Analysis CAS_RN_2007_5, Laboratory for Macroeconomic Analysis.
  6. Ricardo J Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2006. "An equilibrum model of "global imbalances" and low interest rates," BIS Working Papers 222, Bank for International Settlements.
  7. Martin Lettau & Sydney C. Ludvigson, 2004. "Understanding Trend and Cycle in Asset Values: Reevaluating the Wealth Effect on Consumption," American Economic Review, American Economic Association, American Economic Association, vol. 94(1), pages 276-299, March.
  8. Maurice Obstfeld & Kenneth S. Rogoff, 2005. "Global Current Account Imbalances and Exchange Rate Adjustments," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(1), pages 67-146.
  9. Philip Lane & Gian Maria Milesi-Ferreti, 2005. "A Global Perspective on External Positions," Trinity Economics Papers, Trinity College Dublin, Department of Economics 2000516, Trinity College Dublin, Department of Economics.
  10. Franck Portier & Paul Beaudry, 2004. "When Can Changes in Expectations Cause Business Cycle Fluctuations?," 2004 Meeting Papers, Society for Economic Dynamics 865, Society for Economic Dynamics.
  11. Pesaran M.H. & Schuermann T. & Weiner S.M., 2004. "Modeling Regional Interdependencies Using a Global Error-Correcting Macroeconometric Model," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 22, pages 129-162, April.
  12. Pietro Cova & Alessandro Rebucci & Akito Matsumoto & Massimiliano Pisani, 2008. "New Shocks, Exchange Rates and Equityprices," IMF Working Papers, International Monetary Fund 08/284, International Monetary Fund.
  13. Uhlig, Harald, 1999. "What are the Effects of Monetary Policy on Output? Results from an Agnostic Identification Procedure," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2137, C.E.P.R. Discussion Papers.
  14. Karl E. Case, John M. Quigley, Robert J. Shiller., 2001. "Comparing Wealth Effects: The Stock Market versus The Housing Market," Economics Working Papers, University of California at Berkeley E01-308, University of California at Berkeley.
  15. Michael Ehrmann & Marcel Fratzscher & Roberto Rigobon, 2011. "Stocks, bonds, money markets and exchange rates: measuring international financial transmission," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 26(6), pages 948-974, 09.
  16. Peersman, Gert & Straub, Roland, 2004. "Technology shocks and robust sign restrictions in a euro area SVAR," Working Paper Series, European Central Bank 0373, European Central Bank.
  17. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2007. "Real-Time Price Discovery in Global Stock, Bond and Foreign Exchange Markets," CREATES Research Papers 2007-20, School of Economics and Management, University of Aarhus.
  18. Engel, Charles, 1996. "The forward discount anomaly and the risk premium: A survey of recent evidence," Journal of Empirical Finance, Elsevier, Elsevier, vol. 3(2), pages 123-192, June.
  19. Bussière, Matthieu & Fratzscher, Marcel & Müller, Gernot J., 2010. "Productivity shocks, budget deficits and the current account," Journal of International Money and Finance, Elsevier, Elsevier, vol. 29(8), pages 1562-1579, December.
  20. Chinn, Menzie D. & Ito, Hiro, 2007. "Current account balances, financial development and institutions: Assaying the world "saving glut"," Journal of International Money and Finance, Elsevier, Elsevier, vol. 26(4), pages 546-569, June.
  21. Harald Hau & Helene Rey, 2002. "Exchange Rate, Equity Prices and Capital Flows," NBER Working Papers 9398, National Bureau of Economic Research, Inc.
  22. repec:tcd:wpaper:tep16 is not listed on IDEAS
  23. Gruber, Joseph W. & Kamin, Steven B., 2007. "Explaining the global pattern of current account imbalances," Journal of International Money and Finance, Elsevier, Elsevier, vol. 26(4), pages 500-522, June.
  24. Richard Clarida & Daniel Waldman, 2007. "Is Bad News About Inflation Good News for the Exchange Rate?," NBER Working Papers 13010, National Bureau of Economic Research, Inc.
  25. Jaume Ventura, 2001. "A Portfolio View of the U.S. Current Account Deficit," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 32(1), pages 241-258.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Nils Holinski & Robert Vermeulen, 2010. "The International Wealth Channel: A Global Error-Correcting Analysis," CREA Discussion Paper Series 10-04, Center for Research in Economic Analysis, University of Luxembourg.
  2. Enders, Zeno & Müller, Gernot & Scholl, Almuth, 2010. "How do Fiscal and Technology Shocks affect Real Exchange Rates? New Evidence for the United States," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7732, C.E.P.R. Discussion Papers.
  3. Holinski Nils & Vermeulen Robert, 2009. "The International Wealth Effect: A Global Error-Correcting Analysis," Research Memorandum, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR) 019, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  4. Berg, Tim Oliver, 2010. "Exploring the international transmission of U.S. stock price movements," MPRA Paper 23977, University Library of Munich, Germany.
  5. Tim Oliver Berg, 2013. "Cross-country evidence on the relation between stock prices and the current account," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 45(16), pages 2267-2277, June.
  6. Mthuli Ncube & Eliphas Ndou, 2013. "Working Paper 169 - Monetary Policy and Exchange Rate Shocks on South African Trade Balance," Working Paper Series, African Development Bank 448, African Development Bank.
  7. Nikolaychuk Sergiy & Shapovalenko Nadiia, 2013. "The identification of the sources of current account fluctuations in Ukraine," EERC Working Paper Series 13/12e, EERC Research Network, Russia and CIS.
  8. Berg, Tim Oliver, 2009. "Cross-country evidence on the relation between equity prices and the current account," IMFS Working Paper Series, Institute for Monetary and Financial Stability (IMFS), Goethe University Frankfurt 22, Institute for Monetary and Financial Stability (IMFS), Goethe University Frankfurt.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pal:imfstp:v:56:y:2009:i:3:p:633-654. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Elizabeth Gale).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.