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Cross-country evidence on the relation between stock prices and the current account

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  • Tim Oliver Berg

Abstract

This article explores the relation between stock prices and the current account for 17 Organization for Economic Co-operation and Development (OECD) countries in 1980--2007. A panel Vector Autoregressive (VAR) model is used to compare the effects of stock price shocks to those originating from monetary policy and exchange rates. While monetary policy shocks have little effects, shocks to stock prices and exchange rates have sizeable effects. A 10% contraction in stock prices improves the current account by 0.3% after 2 years. Hence a channel -- in addition to the traditional exchange rate channel -- is found through which external balance for an OECD country with a current account imbalance can be restored.

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File URL: http://hdl.handle.net/10.1080/00036846.2012.659349
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 45 (2013)
Issue (Month): 16 (June)
Pages: 2267-2277

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Handle: RePEc:taf:applec:45:y:2013:i:16:p:2267-2277

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Cited by:
  1. Inderst, Roman & Müller, Holger, 2009. "CEO replacement under private information," IMFS Working Paper Series 29, Institute for Monetary and Financial Stability (IMFS), Goethe University Frankfurt.
  2. Inderst, Roman, 2009. "Loan origination under soft- and hard-information lending," IMFS Working Paper Series 27, Institute for Monetary and Financial Stability (IMFS), Goethe University Frankfurt.
  3. Inderst, Roman & Müller, Holger & Münnich, Felix, 2009. "Financing a portfolio of projects," IMFS Working Paper Series 34, Institute for Monetary and Financial Stability (IMFS), Goethe University Frankfurt.
  4. Inderst, Roman & Klein, Manuel, 2009. "Innovation, endogenous overinvestment, and incentive pay," IMFS Working Paper Series 33, Institute for Monetary and Financial Stability (IMFS), Goethe University Frankfurt.
  5. Inderst, Roman, 2009. "Misselling (financial) products: The limits for internal compliance," IMFS Working Paper Series 35, Institute for Monetary and Financial Stability (IMFS), Goethe University Frankfurt.
  6. Inderst, Roman, 2009. ""Irresponsible lending" with a better informed lender," IMFS Working Paper Series 32, Institute for Monetary and Financial Stability (IMFS), Goethe University Frankfurt.
  7. Inderst, Roman & Müller, Holger, 2009. "Early-stage financing and firm growth in new industries," IMFS Working Paper Series 30, Institute for Monetary and Financial Stability (IMFS), Goethe University Frankfurt.
  8. Inderst, Roman & Müller, Holger, 2009. "Bank capital structure and credit decisions," IMFS Working Paper Series 31, Institute for Monetary and Financial Stability (IMFS), Goethe University Frankfurt.

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