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Asset Prices and Current Account Fluctuations in G-7 Economies

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  • 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

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Bibliographic Info

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

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

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Handle: RePEc:pal:imfstp:v:56:y:2009:i:3:p:633-654

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References

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  1. Gert Peersman & Roland Straub, 2009. "Technology Shocks And Robust Sign Restrictions In A Euro Area Svar," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(3), pages 727-750, 08.
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Citations

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Cited by:
  1. Berg, Tim Oliver, 2010. "Cross-country evidence on the relation between stock prices and the current account," MPRA Paper 23976, University Library of Munich, Germany.
  2. 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.
  3. Enders, Zeno & Müller, Gernot J. & Scholl, Almuth, 2011. "How do fiscal and technology shocks affect real exchange rates?: New evidence for the United States," Journal of International Economics, Elsevier, vol. 83(1), pages 53-69, January.
  4. Berg, Tim Oliver, 2009. "Cross-country evidence on the relation between equity prices and the current account," IMFS Working Paper Series 22, Institute for Monetary and Financial Stability (IMFS), Goethe University Frankfurt.
  5. Holinski Nils & Vermeulen Robert, 2009. "The International Wealth Effect: A Global Error-Correcting Analysis," Research Memorandum 019, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  6. Berg, Tim Oliver, 2010. "Exploring the international transmission of U.S. stock price movements," MPRA Paper 23977, University Library of Munich, Germany.
  7. Mthuli Ncube & Eliphas Ndou, 2013. "Working Paper 169 - Monetary Policy and Exchange Rate Shocks on South African Trade Balance," Working Paper Series 448, African Development Bank.
  8. 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.

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